Feather Friends, Inc., distributes a high-quality wooden birdhouse that sells fo
ID: 2416138 • Letter: F
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. Required: Answer the following independent questions: 1. What is the product's CM ratio? CMraic 2. Use the CM ratio to determine the break-even point in dollar sales. Break-even point in sales dellars Due to an increase in demand, the company estimates that sales will increase by $49,000 during the next year. By how much should net operating income increase (or net loss decrease) assuming that fixed expenses do not change? 3. et operating income byExplanation / Answer
Contribution Margin Ratio: Particulars $ Selling Price Per Unit 80 Variable Cost per Unit 40 Contribution Per Unit 40 CM Ration = 40/80 50% Breakeven Point Sales Particulars $ Formuale = Fixed Cost / Contribution % Given Fixed Cost Is 200,000 Breakeven Sales = 200000/50% 400,000 Increase in Net Operating Income: Particulars $ Increase in Sales 49,000 Contribution on that @ 50% 24,500 Increase in operating income 24,500 Income Statement Present Proposed Particulars Total Per Unit Units Total Per Unit Units Sales 2,760,000 80 34,500 3,684,600 71.2 51,750 Variable Cost 1,380,000 40 1,842,300 40 Advertising Cost - 70,000 Contribution 1,380,000 1,772,300 Yes, Sales Manager Suggestion can be Agreed as it increases the Contribution Advertising increased by Sales 80 Variable Cost ( Incl 1.7) 41.70 Contribution 38.30 Sales Units (34500*2) 69,000 Contribution 2,642,700 Advertisng Cost 1,262,700 Fixed Cost 200,000 Profit under Existing 1,180,000
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