.11 T-Mobile 1596L 12:44 AM ezto.mheducation.com Feather Friends, Inc., distribu
ID: 2537195 • Letter: #
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.11 T-Mobile 1596L 12:44 AM ezto.mheducation.com 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 $180,000 per year Required: Answer the following independent questions: What is the product's CM ratio? Use the CM ratio to determine the break-even point in dolar sales. Due to an increase in demand, the company estimates that sales will increase by $59,000 during the next year, By how much should net operating income increase (or net loss decrease) assuming that fixed expenses do not change? Assume that the operating results for last year were Compute the degree of operating leverage at the current levell of sales. (Round your answer to 2 decimal places.) The president expects sales to increase by 16% next year. By what percentage should net operating income increase?Explanation / Answer
Solution 5(a) Feather Friend Inc. Contribution Income Statement Last year Proposed Sales Unit 36000 Sales Unit 37800 Total Per Unit Total Per Unit Sales $2,880,000.00 $80.00 $2,600,640.00 $68.80 Variable Expense -$1,440,000.00 -$40.00 -$1,512,000.00 -$40.00 Contribution Margin $1,440,000.00 $40.00 $1,088,640.00 $28.80 Fixed Expense -$180,000.00 -$180,000.00 Net Operating Income $1,260,000.00 $908,640.00 Solution5(b) Net Income from Proposed Plan is less than by $351360. Hence it, is not recommendable to accept the Proposal Solution 6(a) Feather Friend Inc. Contribution Income Statement Last year Proposed Sales Unit 36000 Sales Unit 72000 Total Per Unit Total Per Unit Sales $2,880,000.00 $80.00 $4,953,600.00 $68.80 Variable Expense -$1,440,000.00 -$40.00 -$2,880,000.00 -$40.00 Increase in Variable Expense for Sales Comission by $1.80/Unit -$129,600.00 -$1.80 Contribution Margin $1,440,000.00 $40.00 $1,944,000.00 $27.00 Fixed Expense -$180,000.00 -$180,000.00 Net Operating Income $1,260,000.00 $1,764,000.00 Solution6(b) Net Income from Proposed Plan is increasing by $504000. Hence it, is recommendable to accept the Proposal
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