Dedkyard Company distributes a lightweight lawn chair that sells for $51 per uni
ID: 2549579 • Letter: D
Question
Dedkyard Company distributes a lightweight lawn chair that sells for $51 per unit. Variable expenses are $20.40 per unit, and fxed expenses total $201,960 annualy. Required 1. What is the product's CM ratio? 2. Use the CM ratio to determine the break-even point in sales dollars. 3. The company estimates that sales wil increase by $51,000 during the coming year due to increased demand. By how much should net operating income increase? 4. Assume that the operating results for last year were as follows Sales 1,683,000 Variable expenses 673,200 Contribution margin Fixed expenses 1,009.800 201,960 Net operating income $807,840 a.Compute the degree of operating leverage at the current level of sales. (Round your answers to 2 decimal places.) b. The president expects sales to increase by 20% next year. By how much should net operating income increase?Explanation / Answer
Answer 1.
Selling Price per unit = $51
Variable Expenses per unit = $20.40
Contribution Margin per unit = Selling Price per unit - Variable Expenses per unit
Contribution Margin per unit = $51 - $20.40
Contribution Margin per unit = $30.60
CM Ratio = Contribution Margin per unit / Selling Price per unit
CM Ratio = $30.60 / $51.00
CM Ratio = 60%
Answer 2.
Breakeven Point in dollar sales = Fixed Expenses / CM Ratio
Breakeven Point in dollar sales = $201,960 / 60%
Breakeven Point in dollar sales = $336,600
Answer 3.
Increase in Operating Income = CM Ratio * Increase in Sales
Increase in Operating Income = 60% * $51,000
Increase in Operating Income = $30,600
Answer 4-a.
Degree of Operating Leverage = Contribution Margin / Net Operating Income
Degree of Operating Leverage = $1,009,800 / $807,840
Degree of Operating Leverage = 1.25
Answer 4-b.
Degree of Operating Leverage = % Change in Net Operating Income / % Change in Sales
1.25 = % Change in Net Operating Income / 20%
% Change in Net Operating Income = 25%
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.