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Feather Friends, Incorporated, distributes a high-quality wooden birdhouse that sells for $80 per unit. Variable expenses are $40.00 per unit, and fixed expenses total $160,000 per year. Its operating results for last year were as follows:

Required:

Answer each question independently based on the original data:

1. What is the product's CM ratio?

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

3. Assume this years unit sales and total sales increase by 48,000 units and $3,840,000, respectively. If the fixed expenses do not change, how much will net operating income increase?

4-a. What is the degree of operating leverage based on last year's sales?

4-b. Assume the president expects this year's unit sales to increase by 10%. Using the degree of operating leverage from last year, what percentage increase in net operating income will the company realize this year?

5. The sales manager is convinced that a 14% reduction in the selling price, combined with a $75,000 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 net operating income if his ideas are implemented?

b. If the sales manager's ideas are implemented, how much will net operating income increase or decrease over last year?

6. The president does not want to change the selling price. Instead, he wants to increase the sales commission by $1.70 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 $920,000 net operating income as last year?

\begin{tabular}{lr} Sales & $2,160,000 \\ Variable expenses & 1,080,000 \\ \hline Contribution margin & 1,080,000 160,000 \\ Fixed expenses & $920,000 \\ \hline Net operating income \end{tabular} What is the product's CM ratio? Use the CM ratio to determine the break-even point in dollar sales. (Do not round intermediate calculations.) Assume this year's unit sales and total sales increase by 48,000 units and $3,840,000, respectively. If the fixed expe not change, how much will net operating income increase? (Do not round intermediate calculations.) What is the degree of operating leverage based on last year's sales? (Round intermediate calculations and final answ decimal places.) Assume the president expects this year's unit sales to increase by 10%. Using the degree of operating leverage from what percentage increase in net operating income will the company realize this year? (Round intermediate calculatio final answer to 2 decimal places.) The sales manager is convinced that a 14% reduction in the selling price, combined with a $75,000 increase in advel would increase this year's unit sales by 25%. If the sales manager is right, what would be this year's net operating i his ideas are implemented? (Do not round intermediate calculations.) The sales manager is convinced that a 14% reduction in the selling price, combined with a $75,000 increase in advel would increase this year's unit sales by 25%. If the sales manager's ideas are implemented, how much will net opera income increase or decrease over last year? (Negative amounts should be input with a minus sign.) The president does not want to change the selling price. Instead, he wants to increase the sales commission by $1.7 unit. He thinks that this move, combined with some increase in advertising, would increase this year's unit sales by: much could the president increase this year's advertising expense and still earn the same $920,000 net operating in last year? (Do not round intermediate calculations.)

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