1,440,000 1,280,000 Compute the degree of operating leverage at the current leve
ID: 2793904 • Letter: 1
Question
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.
Assume that the operating results for last year were:
Explanation / Answer
Requirement 5b:
Since the net operating income resulting from the changes made is higher than that of the last year, the sales manager's suggestion is recommended.
Requirement a: Computation of Degree of operating leverage: a Contribution margin 1440000 b Net Operating Income 1280000 c Degree of Operating Leverage (a/b) 1.13 Requirement b: a Sales 3196800 2880000*111% b Less: Variable Expenses 1598400 1440000*111% c Contribution Margin 1598400 d Fixed Expenses 160000 e Net Operating income 1438400 f Inccrease in Net Operating Income 158400 1438400-1280000 g Percentage increase in Net Operating Income 11.00 158400/1280000 Requirement 5a: Income Statement Last Year After changes a Sales units 28500 42750 28500*150% b Selling price per unit 101.0526316 89.93684211 101.0526316*(100-11)% c Sales (a*b) 2880000 3844800 d Variable Cost per unit 50.52631579 50.52631579 e Variable expenses (a*d) 1440000 2160000 f Contribution margin (c-e) 1440000 1684800 g Fixed Expenses 160000 240000 160000+80000 h Net Operating income (f-g) 1280000 1444800Related Questions
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