Feather Friends, Inc., distributes a high-quality wooden birdhouse that sells fo
ID: 2423805 • Letter: F
Question
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 $180,000 per year.
What is the product's CM ratio?
Use the CM ratio to determine the break-even point in dollar sales.
3. Due to an increase in demand, the company estimates that sales will increase by $51,000 during the next year. By how much should net operating income increase (or net loss decrease) assuming that fixed expenses do not change?
500,000
320,000
Compute the degree of operating leverage at the current level of sales. (Round your answer to 2 decimal places.)
The president expects sales to increase by 14% next year. By what percentage should net operating income increase? (Round intermediate calculations to 2 decimal places and final answer to the nearest percentage.)
Refer to the original data. Assume that the company sold 30,000 units last year. The sales manager is convinced that a 11% reduction in the selling price, combined with a $66,000 increase in advertising, would increase annual unit sales by 50%.
Prepare two contribution format income statements, one showing the results of last year’s operations and one showing the results of operations if these changes are made. (Do not round intermediate calculations. Round your "Per unit" answers to 2 decimal places.)
Refer to the original data. Assume again that the company sold 30,000 units last year. The president does not want to change the selling price. Instead, he wants to increase the sales commission by $2.30 per unit. He thinks that this move, combined with some increase in advertising, would double annual unit sales. By how much could advertising be increased with profits remaining unchanged? Do not prepare an income statement; use the incremental analysis approach.
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 $180,000 per year.
Explanation / Answer
Feather Friends INC Details Amt $ Unit Selling price 40.00 Unit Variable cost 20.00 Unit Contribution margin 20.00 1.00 CM ratio 50.00% Fixed Cost 180,000.00 2.00 Break Even $ Sales =Fixed cost/CM ratio 360,000.00 3.00 expected increase in sales 51,000.00 CM Ratio 50% Expected increase in Contribution Margin 25,500.00 As fixed cost remains unchanged Net Operating Income increase by; 25,500.00 4.00 Last Year Results Sales 1,000,000.00 Variable Expense 500,000.00 Contribution Margin 500,000.00 Fixed expenses 180,000.00 Net Operating Income 320,000.00 a Degree Of operating Leverage= Contribution/Net Operating Income 1.56 b If sales increase by 14% , the net operating Income should increase by 1.56*14=21.84% 5.00 If sales managers change are made CVP Income statement As per last year As per change Units sold 30,000.00 45,000.00 Unit sales price 33.33 29.67 Sales 1,000,000.00 1,335,000.00 Variable Expense 500,000.00 500,000.00 Contribution Margin 500,000.00 835,000.00 Fixed expenses 180,000.00 246,000.00 Net Operating Income 320,000.00 589,000.00 b As the net operating income increases , I shall recommend the company to accept sales manager's proposal 6.00 When the sales commission increased CVP Incremental Statement As per last year As per change Units sold 30,000.00 60,000.00 Unit sales price 33.33 33.33 Unit variable cost 16.67 18.97 Unit Contribution margin 16.67 14.36 Total Contribution 500,000.00 861,800.00 Incremental Contribution 361,800.00 Advertisement can be increased by $361800 with maintaining same net operating income of last year Sales 1,000,000.00 Variable Expense 500,000.00 Contribution Margin 500,000.00 Fixed expenses 180,000.00 Net Operating Income 320,000.00
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