Deckyard Company distributes a lightweight lawn chair that sells for $80 per uni

Question

Deckyard Company distributes a lightweight lawn chair that sells for $80 per unit. Variable expenses are $40.00 per unit, and fixed expenses total $180,000 annually.

The company estimates that sales will increase by $53,000 during the coming year due to increased demand. By how much should net operating income increase?

1,080,000

900,000

The president expects sales to increase by 14% next year. By how much should net operating income increase?

Refer to the original data. Assume that the company sold 37,500 units last year. The sales manager is convinced that a 11% reduction in the selling price, combined with a $63,000 increase in advertising expenditures, would increase annual unit sales by 50%.

Prepare two contribution format income statements, one showing the results of last year

Required: 1. What is the product's CM ratio?

Explanation / Answer

1) Selling price per unit = $80

CONTRIBUTION PER UNIT = $80-$40 = $40

CM ratio = CONTRIBUTION PER UNIT/Selling price per unit = 40/80*100 = 50%

2)Break-even point in total sales dollars = fixed expenses/CM ratio = $180,000/50% = $360,000

3) net operating income increase = Increase in sales-Variable cost

= $53,000 - ($53,000/$80)*$40

= $26,500

4a)

1,080,000

900,000

Degree of Operating Leverage = Contribution Margin/Net Income = 1080000/900000 = 1.2

4b)Increase in sales @14% = $2,160,000*0.14 = $302,400
Increase in variable expenses @14% = $1,080,000*0.14 = $151,200
INCREASE IN NET OPERATING INCOME = Increase in sales @14% - Increase in variable expenses @14% = $151,200

i think rest of it u can do it .

Sales $ 2,160,000 Variable expenses

1,080,000

Contribution margin 1,080,000 Fixed expenses 180,000 Net operating income $

900,000

Related Questions

Navigate

• Browse (All)
• Browse D
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.