Feather Friends, Inc., distributes a high-quality wooden birdhouse that sells fo
ID: 2584555 • Letter: F
Question
Feather Friends, Inc., distributes a high-quality wooden birdhouse that sells for $120 per unit. Variable expenses are $60.00 per unit, and fixed expenses total $160,000 per year.
What is the product's CM ratio?
Use the CM ratio to determine the break-even point in dollar sales.
Due to an increase in demand, the company estimates that sales will increase by $57,000 during the next year. By how much should net operating income increase (or net loss decrease) assuming that fixed expenses do not change?
1,440,000
1,280,000
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 11% 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 28,500 units last year. The sales manager is convinced that a 11% reduction in the selling price, combined with a $80,000 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 again that the company sold 28,500 units last year. The president does not want to change the selling price. Instead, he wants to increase the sales commission by $2.20 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.
Feather Friends, Inc., distributes a high-quality wooden birdhouse that sells for $120 per unit. Variable expenses are $60.00 per unit, and fixed expenses total $160,000 per year.
Explanation / Answer
1) CM ratio = Contribution/sales 60/120 50% 2) BEP(sales) = Fixed expense/contribution margin 320000 3) Net income will increase by 57000*50% 28500 4)a) Degree of operating leverage = contribution/net income 1,440,000/1,280,000 1.13 b) net operating income will increase by = 12.38 % 5)a) last year this year unit in sales 28,500 42750 Selling price per unit 120 106.8 total sales 3420000 4565700 less variable expense $60 1710000 2565000 Contribution margin 1710000 2000700 less:fixed expense 160,000 240,000 Net operating income 1,550,000 1,760,700 b) yes 6) New contribution 60 - 2.20= 57.8 (57.8*42,750) = 160,000+x +1,550,000 2,470,950 = 1,710,000 + x x = 760950 answer
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