Feather Friends, Inc., distributes a high-quality wooden birdhouse that sells for $40 per unit. Variable expenses...

80.2K

Verified Solution

Question

Accounting

Feather Friends, Inc., distributes a high-quality woodenbirdhouse that sells for $40 per unit. Variable expenses are $20.00per unit, and fixed expenses total $160,000 per year. Its aperatingresults for last year were as follows:
Sales $ 1,120,000
Variable expenses 560,000
Contribution margin 560,000
Fixed expenses 160,000
Net operating income $ 400,000
Required:
Answer each question independently based on the originaldata:
The sales manager is convinced that a 14% reduction in theselling price, combined with a $70,000 increase in advertising,would increase this year's unit sales by 25%.
- If the sales manager is right, what would be this year's netoperating income if his ideas are implemented? Do you recommendimplementing the sales manager's suggestions?
- The president does not want to change the selling price.Instead, he wants to increase the sales commission by $1.80 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 $400,000 net operating income as last year?

Answer & Explanation Solved by verified expert

4.4 Ratings (541 Votes)

a Prepare contribution format income statement for the two years One year is for the results of last year and another should belong to the result of next year Company Feather Friends Inc Contribution format Income Statement Amount in See Answer

Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:

Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!

Become a Member

Transcribed Image Text

Feather Friends, Inc., distributes a high-quality woodenbirdhouse that sells for $40 per unit. Variable expenses are $20.00per unit, and fixed expenses total $160,000 per year. Its aperatingresults for last year were as follows:Sales$1,120,000Variable expenses560,000Contribution margin560,000Fixed expenses160,000Net operating income$400,000Required:Answer each question independently based on the originaldata:The sales manager is convinced that a 14% reduction in theselling price, combined with a $70,000 increase in advertising,would increase this year's unit sales by 25%.- If the sales manager is right, what would be this year's netoperating income if his ideas are implemented? Do you recommendimplementing the sales manager's suggestions?- The president does not want to change the selling price.Instead, he wants to increase the sales commission by $1.80 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 $400,000 net operating income as last year?


Sales	$	1,120,000
Variable expenses		560,000
Contribution margin		560,000
Fixed expenses		160,000
Net operating income	$	400,000