Feather Friends, Inc., distributes a high-quality woodenbirdhouse that sells for $80 per unit. Variable...

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Accounting

Feather Friends, Inc., distributes a high-quality woodenbirdhouse that sells for $80 per unit. Variable expenses are $40.00per unit, and fixed expenses total $180,000 per year. Its operatingresults for last year were as follows:
Sales                           $ 2,000,000
Variableexpenses           1,000,000
Contributionmargin          1,000,000
Fixedexpenses                180,000
Net operatingincome         $820,000
Required: Answer each question independently based on theoriginal data:
1. What is the product's CM ratio?
2. Use the CM ratio to determine the break-even point in dollarsales.
3. If this year's sales increase by $51,000 and fixed expensesdo not change, how much will net operating income increase?
4-a. What is the degree of operating leverage based on lastyear's sales?
4-b. Assume the president expects this year's sales to increaseby 11%. Using the degree of operating leverage from last year, whatpercentage increase in net operating income will the companyrealize this year?
5. The sales manager is convinced that a 10% reduction in theselling price, combined with a $74,000 increase in advertising,would increase this year's unit sales by 25%.
a. If the sales manager is right, what would be this year's netoperating income if his ideas are implemented?
b. Do you recommend implementing the sales manager'ssuggestions?
6. The president does not want to change the selling price.Instead, he wants to increase the sales commission by $1.60 perunit. He thinks that this move, combined with some increase inadvertising, would increase this year's sales by 25%. How muchcould the president increase this year's advertising expense andstill earn the same $820,000 net operating income as last year?

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1 What is the products CM ratio Amount Sales Price 80 1000 Less Variable cost 40 500 Contribution margin 40 500 CM Ratio 4080 50 2 breakeven point in dollar sales Fixed Expanses CM ratio 18000050 360000 breakeven point in dollar sales 3600000 3 If this years sales increase by 51000 and fixed expenses do not change how much will net operating income See Answer

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In: AccountingFeather Friends, Inc., distributes a high-quality woodenbirdhouse that sells for $80 per unit. Variable expenses...Feather Friends, Inc., distributes a high-quality woodenbirdhouse that sells for $80 per unit. Variable expenses are $40.00per unit, and fixed expenses total $180,000 per year. Its operatingresults for last year were as follows:Sales $ 2,000,000Variableexpenses 1,000,000Contributionmargin 1,000,000Fixedexpenses 180,000Net operatingincome $820,000Required: Answer each question independently based on theoriginal data:1. What is the product's CM ratio?2. Use the CM ratio to determine the break-even point in dollarsales.3. If this year's sales increase by $51,000 and fixed expensesdo not change, how much will net operating income increase?4-a. What is the degree of operating leverage based on lastyear's sales?4-b. Assume the president expects this year's sales to increaseby 11%. Using the degree of operating leverage from last year, whatpercentage increase in net operating income will the companyrealize this year?5. The sales manager is convinced that a 10% reduction in theselling price, combined with a $74,000 increase in advertising,would increase this year's unit sales by 25%.a. If the sales manager is right, what would be this year's netoperating income if his ideas are implemented?b. Do you recommend implementing the sales manager'ssuggestions?6. The president does not want to change the selling price.Instead, he wants to increase the sales commission by $1.60 perunit. He thinks that this move, combined with some increase inadvertising, would increase this year's sales by 25%. How muchcould the president increase this year's advertising expense andstill earn the same $820,000 net operating income as last year?