4. 1,040,000 860,000 Compute the degree of operating leverage at the current lev

Question

4.

1,040,000

860,000

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 20% next year. By what percentage should net operating income increase? (Round intermediate calculations to 2 decimal places and final percentage answer to 2 decimal places, i.e. 22.47%)

Refer to the original data. Assume that the company sold 37,500 units last year. The sales manager is convinced that a 13% reduction in the selling price, combined with a $70,000 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 that the company sold 37,500 units last year. The sales manager is convinced that a 13% reduction in the selling price, combined with a $70,000 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 that the company sold 37,500 units last year. The sales manager is convinced that a 13% reduction in the selling price, combined with a $70,000 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.)

  

  

Assume that the operating results for last year were:

Explanation / Answer

4a. Degree of operating leverage = Contribution margin/Net operating income = $1040000/$860000 = 1.21

4b. The percentage increase in net operating income with a 20% increase in sales = 1.21 x 20% = 24.20%

5a.

Working:

Proposed sales units = 37500 x 1.50 = 56250 units

Proposed selling price = $55.47 - (13% x $55.47) = $55.47 - $7.2111 = $48.2589 = $48.26

Proposed fixed expenses = $180000 + $70000 = $250000

Feather Friends, Inc. Contribution Income Statement Last Year Proposed 37500 units 56250 units Total Per Unit Total Per Unit Sales 2080000 55.47 2714625 48.26 Variable expenses 1040000 27.73 1559813 27.73 Contribution margin 1040000 27.73 1154813 20.53 Fixed expenses 180000 4.80 250000 4.44 Net operating income 860000 22.93 904813 16.09

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