Feather Friends, Inc., distributes a high-quality wooden birdhouse that sells for $120 per unit. Variable expenses are $...

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Question

Feather Friends, Inc., distributes a high-quality wooden birdhouse that sells for $120 per unit. Variable expenses are $60.00 per unit, and fixed expenses total $180,000 per year. Its operating results for last year were as follows:


Sales	$	3,000,000
Variable expenses		1,500,000
Contribution margin		1,500,000
Fixed expenses		180,000
Net operating income	$	1,320,000

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 $49,000 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 19%. 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 $78,000 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 $1,320,000 net operating income as last year?

Reg 1 Reg 2 Reg 3 Req 4A Reg 4B Req 5A Req 5B Reg 6 What is the products CM ratio? CM ratio % Reg 1 Reg 2 Reg 3 Reg 4A Req 4B Req 5A Req 5B Reg 6 Use the CM ratio to determine the break-even point in dollar sales. (Do n Req 1 Rega Reg 2 Reaz Reg 3 Req3 Regan Req 4B RegaB Reg 5A Reasa Req 5B Rease Rego If this years sales increase by $49,000 a Req 1 pecan Reg 2 Req3 Req 4A Req 4B Req 5A Req 5B Reg 6 What is the degree of operating leverage based on last years sales? Reg 1 Reg 2 Reg 3 Req 4A Reg 4B Req 5A Req 5B Reg 6 Assume the president expects this years sales to increase by 19%. Using Reg 1 Reg 2 Reg 3 Req 4A Req 4B Reg 5A Reg 5B Reg 6 The sales manager is convinced that a 12% reduction in the selling price, Reg 1 Reg 2 Reg 3 Reg 4A Reg 4B Reg 5A Req 5B Reg 6 The sales manager is convinced that a 12% reduction in the selling price, Req 1 Reg 2 Reg 3 Req 4A Req 4B Reg 5A Req 5B Reg 6 The president does not want to change the selling price. Instead, he want

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Answer 1

Answer #1

120 60 Sales Variable Expenses contribution Margin Fixed cost Net operating Income 2500U Per unit 3000000 1500000 1500000 180 60 12% reduction in selling price, 78,000 incresed in Advertisement, sales units will increase by 25% Sales units 31250 per u

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