Feather Friends, Inc., distributes a high-quality wooden birdhouse that sells fo
ID: 2547523 • 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. Required: Answer the following independent questions: 1. What is the product's CM ratio? ratio 50 % 2. Use the CM ratio to determine the break-even point in dollar sales. eak-evea point in sales dollars 360,000 3. Due to an increase in demand the company estimates that sales will increase by $54,000 during the next year, By how moch should fixed expenses do not change? net operating income increase (or net loss decrease) assuming that et operating income ,increases S 27,000 O Type here to searchExplanation / Answer
5.a.
Feather Friend Inc.
Contribution Income Statement
Last year
Proposed
31500
Unit
47250
Unit
Total
Per Unit
Total
Per Unit
Sales
$1,260,000
$40
$1,625,400
$34
Less: Variable expense
$630,000
$20
$945,000
$20
Contribution Margin
$630,000
$20
$680,400
$14
Less: Fixed Expense
$180,000
$243,000
Net Operating Income
$450,000
$437,400
Working Note for Proposed
Fixed Cost
Existing Fixed Cost
$180,000
Extra Advertisement Cost
$63,000
Fixed Cost' for Proposed
$243,000
Selling Price
Existing Selling Price
$40
Revised selling Price
$34
( $40*86%)
Sales Unit
Existing Sales Unit
$31,500
Revised Sales Unit
$47,250
(31500 Unit*150%)
5.b.
Answer will be ( NO). Net Operating is decreased by $12500 in following Proposed Plan as compare with exiting sales of 31500 Unit. Hence it's not recommended to accept the Sales Manager Suggestion.
6
Contribution margin will be reduced by $1.80 due to Increase the sales Commission. Hence revised contribution Margin will be ($20-$1.80=$18.20)
Revised Sales Quantity( 31500 Unit*2 times)=63000 Unit
Existing Profit=$450000
Calculation of Amount incurred on Advertisement
Increased in Contribution
$1,146,600
( 63000unit*$18.20)
Less: Existing Profit
$450,000
Less: Existing Fixed Expense
$180,000
Amount can be incurred for Advertisement
$516,600
5.a.
Feather Friend Inc.
Contribution Income Statement
Last year
Proposed
31500
Unit
47250
Unit
Total
Per Unit
Total
Per Unit
Sales
$1,260,000
$40
$1,625,400
$34
Less: Variable expense
$630,000
$20
$945,000
$20
Contribution Margin
$630,000
$20
$680,400
$14
Less: Fixed Expense
$180,000
$243,000
Net Operating Income
$450,000
$437,400
Working Note for Proposed
Fixed Cost
Existing Fixed Cost
$180,000
Extra Advertisement Cost
$63,000
Fixed Cost' for Proposed
$243,000
Selling Price
Existing Selling Price
$40
Revised selling Price
$34
( $40*86%)
Sales Unit
Existing Sales Unit
$31,500
Revised Sales Unit
$47,250
(31500 Unit*150%)
5.b.
Answer will be ( NO). Net Operating is decreased by $12500 in following Proposed Plan as compare with exiting sales of 31500 Unit. Hence it's not recommended to accept the Sales Manager Suggestion.
6
Contribution margin will be reduced by $1.80 due to Increase the sales Commission. Hence revised contribution Margin will be ($20-$1.80=$18.20)
Revised Sales Quantity( 31500 Unit*2 times)=63000 Unit
Existing Profit=$450000
Calculation of Amount incurred on Advertisement
Increased in Contribution
$1,146,600
( 63000unit*$18.20)
Less: Existing Profit
$450,000
Less: Existing Fixed Expense
$180,000
Amount can be incurred for Advertisement
$516,600
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