Question

Feather Friends, Inc., distributes a high-quality wooden birdhouse that sells for $80 per unit. Variable expenses are $40.00 per unit, and fixed expenses total $180,000 per year. Its operating results for last year were as follows: points (8 03:38:50 Sales Variable expenses Contribution margin Fixed expenses Net operating income $ 2,160,000 1,080,000 1,080,000 180,000 $ 900,000 eBook Required: Answer each question independently based on the original data: Print 1. What is the product's CM ratio? 2. Use the CM ratio to determine the break-even point in dollar sales. 3. If this year's sales increase by $45,000 and fixed expenses do not change, how much will net operating income increase? 4-a. What is the degree of operating leverage based on last year's sales? 4-b. Assume the president expects this year's sales to increase by 11%. Using the degree of operating leverage from last year, what percentage increase in net operating income will the company realize this year? 5. The sales manager is convinced that a 15% reduction in the selling price, combined with a $70,000 increase in advertising, would increase this year's unit sales by 25%. a. If the sales manager is right, what would be this year's net operating income if his ideas are implemented? b. If the sales manager's ideas are implemented, how much will net operating income increase or decrease over last year? 6. The president does not want to change the selling price. Instead, he wants to increase the sales commission by $2.00 per unit. He thinks that this move, combined with some increase in advertising, would increase this year's sales by 25%. How much could the president increase this year's advertising expense and still earn the same $900,000 net operating income as last year? Complete this question by entering your answers in the tabs below. Req 1 Reg 2 Req 3 Req 4A Reg 4B Req 5A Req 5B Reg 6 What is the product's CM ratio? CM ratio Reg 1 Req 2

Answer 1

Sales Variable Expenses contribution Margin Fixed cost Net operating Income 27000 Per unit 2160000 | 1080000 1080000 180000| 900000 answers 1|cM ratio ( 40/80) 50% 2 Break Even Point in Dollar sales (180000/50% | 360000 If sales increase by $45,000 How much Operating income Will Increases Increase in operating income | 45,000*0.5) 22500 4A) Degree of Operating leverage (Contribution / Net operating income) 1.20 4B) Sales increased by 16% how much Opearting income 11% will increase (Operating Leverage * Increased sales ) 13.20% 5 15% reduction in selling price ,70,000 incresed in Advertisement, sales units will increase by Sales units 33750 per unit Sales 2295000 Variable Expenses 1350000 contribution Margin 945000 28 Fixed cost 250000 Net operating Income 695000 5A) This years Net operating income 695000 68 ਆ

205000 5B) how much net oeprating income increase or Decrease Decrease by Instead of Increase in selling price increased the Sales commission by $2.00 Sales units Sales Variable Expenses contribution Margin Fixed cost Net operating income Increase in Fixed Cost( 256500-27000*2.00) Amount to be increase in advertisements 6750 540000 283500 256500 256500 202500 202500