Question

Check my work 5 Feather Friends, Inc., distributes a high-quality wooden birdhouse that sells for $40 per unit. Variable expenses are $20.00 per unit, and fixed expenses total $160,000 per year. Its operating results for last year were as follows: 4 points Sales Variable expenses Contribution margin Fixed expenses Net operating income $ 1,080,000 540,000 540,000 160,000 $ 380,000 eBook Print 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. Assume this year's unit sales and total sales increase by 58,000 units and $2,320,000, respectively. If the 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 unit sales to increase by 16%. Using the degree of operating leverage from last year, what percentage increase in net operating income will the company realize this year?

Answer 1

Contribution margin

It is a sales price minus all associated variable costs, resulting in the incremental profit earned for each unit sold. The total contribution margin generated by an entity represents the total earnings available to pay for fixed expenses and to generate a profit.

Contribution Margin -
Particulars	Amount
Sale price	$          40.00
Less:-Variable cost	$          20.00
Contribution	$        20.00
Contribution Margin Ratio -	=20/40*100
= Contribution/Sales*100	50%

Break even sales in Dollars

It is the dollar amount of revenue at which a business earns a profit of zero It is the required sales to meet the variable and fixed cost of the product.

Formula = Fixed cost/Contribution margin

= $1,60,000/50% = $ 3,20,000.