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 $200,000 per year. Its operating results for last year were as follows: sales Variable expenses Contribution margin Fixed expenses Net operating income $ 1,920, eee 960, eee 960, eee 2ee, eee 760,eee Required: Answer each question Independently based on the original data: 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 $47,000 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? 4-6. Assume the president expects this year's sales to Increase by 15%. 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 $74,000 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 w h 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 $1.70 per unit. He thinks that this move, combined with some increase in advertising, would increase this year's sales by 25%. How much president Increase this year's advertising expense and still earn the same $760,000 net operating Income as last year? Complete this question by entering your answers in the tabs below. Reg 1 Reg 2 Reg 3 Reg 4A Reg 4B Reg 5A Reg 5B Reg 6 The sales manager is convinced that a 15% reduction in the selling price, combined with a $74,000 increase in advertising, would increase this year's unit sales by 25%. If the sales manager's ideas are implemented, how much will net operating income increase or decrease over last year? (Negative amounts should be input with a minus sign.) Increase (decrease) to net operating income < Req 5A Req6 >

Answer 1

68 28 15% reduction in selling price, 5 74.000 incresed in Advertisement, sales units will increase by 25% Sales units 30000 per unit Sales 2040000 Variable Expenses 1200000 contribution Margin 840000 Fixed cost 274000 Net operating Income 566000 5A) Net operating income 566000 5B) Net operating income Decreased by (760000-566000) Decreased by 194000 Instead of Increase in selling price increased the Sales commission by $1.70 Incremental Analysis Sales units 6000 Sales 480000 Variable Expenses 250200 contribution Margin 229800 38.3 Fixed cost 229800 Net operating income Increase in Ficed Cost( 2298000-(24000*1.70) 189000 Amount to be increase in advertisements 189000 41.7