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

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Question

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.
Required:
Answer the following independent questions:
1.What is the product's CM ratio?


2. Use the CM ratio to determine the break-even point in dollarsales.

3. Due to an increase in demand, the company estimates thatsales will increase by $53,000 during the next year. By how muchshould net operating income increase (or net loss decrease)assuming that fixed expenses do not change?

4. Assume that the operating results for last year were:

Sales $ 2,160,000
Variable expenses 1,080,000
Contribution margin 1,080,000
Fixed expenses 180,000
Net operating income $ 900,000

a. Compute the degree of operating leverage at the current levelof sales. (Round your answer to 2 decimalplaces.)

b. The president expects sales to increase by 17% next year. Bywhat percentage should net operating income increase?(Round intermediate calculations and final answer to 2decimal places.)

Answer & Explanation Solved by verified expert

4.0 Ratings (701 Votes)

Part 1 CM Ratio A Sale Price 8000 B Variable cost 4000 CAB Contribution margin 4000 DCA100 Contribution margin ratio 50 Part 2 A Contribution margin See Answer

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Sales	$	2,160,000
Variable expenses		1,080,000
Contribution margin		1,080,000
Fixed expenses		180,000
Net operating income	$	900,000