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Feather Friends Inc. distributes a high$-$quality wooden birdhouse that sells for $$20$ per unit. Variable expenses are $$8$ per

unit, and fixed expenses total $ $180,000$ per year. operating results for last year were as follows:

Sales $(20,000$ units$)$

Variable expenses

Contribution margin

Fixed expenses

Operating income

$ $-400\mathrm{.}000$

$160\mathrm{.}000$

$240,000$

$180\mathrm{.}000$

$60\mathrm{.}000$

Required:

Answer the following independent questions:

What is the product's CM ratio?

$2.$ Use the CM ratio to determine the break$-$even point in sales dollars.

$3.$ Assume this year's total sales increase by $$75,000.$ If the fixed expenses do not change, how much will operating income

increase?

$4.$ Assuming that the operating results for last year were as above:

Compute the degree of operating leverage based on last year's sales.

a$.$

b$,$ The president expects sales to increase by $20\%$ next year. Using the degree of operating leverage from last year, what

percentage increase in operating income will the company realize this year? Calculate the dollar increase in operating

income.

The sales manager is convinced that a $10\%$ reduction in the selling price, combined with a $$30,000$ increase in advertising.

$5.$

would increase this year's unit sales by $25\%.$ If the sales manager is right, what would be this year's operating income if his

ideas are implemented? Do you recommend implementing the sales manager's sugeestions? Why?

The president does not want to change the selling price. Instead, he wants to increase the sales commission by $I per

unit. He thinks that this move, combined with some increase in advertising. would increase this year's unit sales by $25\%.$

How much could the president increase this year's advertising expense and still earn the same $$60,000$ operating income

as last

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