Deckyard Company distributes a lightweight lawn chair that sells for $21 per uni

Question

Deckyard Company distributes a lightweight lawn chair that sells for $21 per unit. Variable expenses are $8.40 per unit, and fixed expenses total $70,560 annually.

The company estimates that sales will increase by $41,000 during the coming year due to increased demand. By how much should net operating income increase?

Compute the degree of operating leverage at the current level of sales. (Round your answers to 2 decimal places.)

The president expects sales to increase by 12% next year. By how much should net operating income increase?

Refer to the original data. Assume that the company sold 38,500 units last year. The sales manager is convinced that a 6% reduction in the selling price, combined with a $40,500 increase in advertising expenditures, 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 what the results of operations would be if these changes were 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 38,500 units last year. The president feels that it would be unwise to change the selling price. Instead, he wants to increase the sales commission by $1.20 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.

Deckyard Company distributes a lightweight lawn chair that sells for $21 per unit. Variable expenses are $8.40 per unit, and fixed expenses total $70,560 annually.

Explanation / Answer

As per chegg guidelines we answer maximum 4 parts per question per post. Dear Student Thank you for using Chegg Please find below the answer Statementshowing Computations Paticulars Amount a) Selling price per unit                         21.00 Variable cost per unit                         (8.40) Contribution per unit                         12.60 CM Ratio = 12.60/21 60.00% b) Fixed costs                 70,560.00 BEP in $ = 70560/60%               117,600.00 3) Sales increase by                 41,000.00 net operating income increase = 41000*.60                 24,600.00 4) Sales               588,000.00 Less Variable Expenses            (235,200.00) Contribution Margin               352,800.00 Fixed cost               (70,560.00) Net operating income               282,240.00 a) DOL = 352800/282240                            1.25 b) NOI will increase = 12%*1.25 15.00% Increase in NOI in $ = 282240*15%                 42,336.00

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