Deckyard Company distributes a lightweight lawn chair that sells for $80 per unit. Variable expenses are $40.00 per unit, and fixed expenses total $180,000 annually.

Required:
1.	What is the product's CM ratio?

CM ratio

%

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

Break-even point in sales dollars

$

3.	The company estimates that sales will increase by $53,000 during the coming year due to increased demand. By how much should net operating income increase?

Net operating income increases by

$

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		180,000
Net operating income	$	900,000

a.	Compute the degree of operating leverage at the current level of sales.

Degree of operating leverage

b.	The president expects sales to increase by 14% next year. By how much should net operating income increase?

Net operating income increases by

$

5.	Refer to the original data. Assume that the company sold 37,500 units last year. The sales manager is convinced that a 11% reduction in the selling price, combined with a $63,000 increase in advertising expenditures, would increase annual unit sales by 50%.

a.	Prepare two contribution format income statements, one showing the results of last year