3 Problem 5-23 (Static) CVP Applications; Contribution Margin Ratio: Degree of Operating Leverage (LO5- 1, LO5-3, LO5-4, LO5-5, LO5-8] 6.68 points 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. Its operating results for last year were as follows: Sales eBook Variable expenses Contribution margin Fixed expenses $ 400,000 160,000 240,000 180,000 Print Net operating income $ 60,000 References 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 year's unit sales and total sales increase by 3,750 units and $75,000, res how much will net operating income increase? ectively. If the fixed expenses do not change, 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 20%. 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 10% reduction in the selling price, combined with a $30,000 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 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 net operating income as last year? Complete this question by entering your answers in the tabs below. Reg 1 Reg 2 Reg 3 Req 4A Req 4B Reg 5A Reg 5B Reg 6 What is the product's CM ratio? CM ratio Req 1 Reg 2 Req 3 Req 4A Req 4B Req 5A Req 5B Req 6 Use the CM ratio to determine the break-even point in dollar sales. (Do not round intermediate calculations.) Break-even point in dollar sales Reg 1 Reg 2 Req 3 Req 4A Req 4B Reg 5A Reg 5B Req 6 Assume this year's unit sales and total sales increase by 3,750 units and $75,000, respectively. If the fixed expenses do not change, how much will net operating income increase? Net operating income by increases decreases Req 1 Reg 2 Reg 3 Req 4A Req 4B Req 5A Req 5B Req 6 What is the degree of operating leverage based on last year's sales? Degree of operating leverage Reg 1 Reg 2 Reg 3 Req 4A Req 4B Req 5A Req 5B Req 6 Assume the president expects this year's unit sales to increase by 20%. Using the degree of operating leverage from last year, what percentage increase in net operating income will the company realize this year? Net operating income increases by % Req 1 Reg 2 Req 3 Req 4A Reg 4B Req 5A Reg 5B Req 6 The sales manager is convinced that a 10% reduction in the selling price, combined with a $30,000 increase in advertising, would increase this year's unit sales by 25%. If the sales manager is right, what would be this year's net operating income if his ideas are implemented? Net operating income (loss) Req 1 Req 2 Req 3 Req 4A Req 4B Req 5A Req 5B Req 6 The sales manager is convinced that a 10% reduction in the selling price, combined with a $30,000 increase in advertising, would increase this year's unit sales by 25%. If the sales manager's ideas are implemented, how much will net operating income increase or decrease over last year? (Negative amounts should be input with a minus sign.) Increase (decrease) to net operating income Req 1 Req 2 Reg 3 Req 4A Req 4B Req 5A Req 5B Req 6 The president does not want to change the selling price. Instead, he wants to increase the sales commission by $1 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 net operating income as last year? Show less The amount by which advertising can be increased is