60.1K

Verified Solution

Link Copied!

Stratford Company distributes a lightweight lawn chair that sells for $80 per unit. Variable expenses are $40.00 per unit, and fixed expenses total $200,000 annually.

Required:
1.	What is the product's CM ratio? (Do not round intermediate calculations.)

CM ratio

50%

2.	Use the CM ratio to determine the break-even point in sales dollars. (Do not round intermediate calculations. Round your answer to the nearest dollar amount. )

Break-even point in sales dollars

$ 400000

3.	The company estimates that sales will increase by $54,000 during the coming year due to increased demand. By how much should net operating income increase?

Net operating income increases by

$ 27000

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

Sales	$	2,160,000
Variable expenses		1,080,000
Contribution margin		1,080,000
Fixed expenses		200,000
Net operating income	$	880,000

a.	Compute the degree of operating leverage at the current level of sales. (Round your answer to 2 decimal places.)

Degree of operating leverage 1.23

b.	The president expects sales to increase by 19% next year. By how much should net operating income increase? (Round your intermediate calculations to 2 decimal places and final answer to the nearest dollar amount.)

Net operating income increases by

$ 205200

6.

Refer to the original data. Assume again that the company sold 40,500 units last year. The president feels that it would be unwise to change the selling price. Instead, he wants to increase the sales commission by $2.50 per unit. He thinks that this move, combined with some increase in advertising, would double annual unit sales. By how much could advertising be increased with profits remaining unchanged? Do not prepare an income statement; use the incremental analysis approach.

The amount by which advertising can be increased is

$

Answer & Explanation Solved by verified expert

See Answer