Question

Check my work 4 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: 35 points Sales Variable expenses Contribution margin Fixed expenses Net operating income $ 2, eee, eee 1, eee, eee 1, e82, eee 200,wee $ 800, eee 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 $59.000 and fixed expenses do not change, how much will net operating income increase? References 4-a. What is the degree of operating leverage based on last year's sales? 4-5. Assume the president expects this year's sales to increase by 12%. 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 12% reduction in the selling price, combined with a $72.000 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 $1.80 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 $800,000 net operating income as last year? Complete this question by entering your answers in the tabs below. Reg 1 Reg 2 Reg 3 3 Reg 4A Reg 4B Reg 5A Req 5B Reg 6 What is the product's CM ratio?

Answer 1

Formulas applied in Break Even analysis Contribution Margin per Unit= Selling Price - Variable Cost per Unit CM ratio = ( Contribution Margin / Selling Price) Break Even Point in Units = Fixed Cost / CM Per Unit Break Even Point in Dollars = Fixed cost / CM Ratio Operating Leverage = Contribution Margin / Operating Income Answers 1 CM Ratio 2 Break - Even Point in Dollar Sales 3 Net operating income increased by 4A) Degree of operating Leverage 4B) Net operating income increased by 5A) Net operating income (loss) 5B) Net operating income (Decreased) by 6 Advertisements increased by 50% 400000 29500 1.25 15.00% 678000 -122000 193750

Working Part and Calculation 25000 Per unit Sales 2000000 80 Variable Expenses 1000000 40 contribution Margin 1000000 40 Fixed cost 200000 Net operating Income 800000 answers 1 CM ratio 40 / 80 50% 2 Break Even Point in Dollar 200000 / 50% 400000 3 If sales increase by 59000 operating income Will increase by Increase in operating income 59000 * 50% 29500 4A) Degree of Operating leverage (Contribution / Net operating income) 1000000 / 800000 1.25 4B) Sales increased by12% how much Operating income % will increase (Operating Leverage * Increased sales) 12% 1.25 15.00%

70.4 * 30.4 * Reduction in selling Price by 12% 5 increase in Advertisement by 72000 Sales increased by 25% Sales units 25000 * 125% Sales 31250 Variable Expenses 40 * 31250 contribution Margin 31250 Fixed cost 200000 + 72000 Net operating Income 5A) This years Net operating income 5B) Net operation income Decrease BY 678000 - 800000 6 Instead of Increase in selling price increased the Sales commission by Sales units Sales 31250 Variable Expenses 31250 contribution Margin 31250 Fixed cost Net operating Income Advertisements Expenses 200000 - 393750 31250 2200000 1250000 950000 272000 678000 678000 -122000 1.80 31250 2500000 1306250 1193750 393750 800000 193750 80 * 41.8 * 38.2 *