Deckyard Company distributes a lightweight lawn chair that sells for $39 per unit. Variable expenses are $15.60 per unit, and fixed expenses total $145,080 annually.

1. What is the product's CM ratio?

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

3. The company estimates that sales will increase by $47,000 during the coming year due to increased demand. By how much should net operating income increase?

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

sales	$1,209,000
Variable expenses	483,600
Contribution Margin	725,400
Fixed expenses	145,080
net operating income	$580,320

a. Compute the degree of operating leverage at the current level of sales. Round to two decimal points.

b. The president expects sales to increase by 12% next year. By how much should net operating income increase?

5. Refer to the original data. Assume that the company sold 41,500 units last year. The sales manager is convinced that a 12% reduction in the selling price, combined with a $43,500 increase in advertising expenditures, would increase annual unit sales by 50%.

a. Prepare two contribution format income statements, one showing the results of last years operations and one showing what the results of operations would be if these changes were made.

Last Year 41,500 units Proposed units

	Total	Per unit	Total	Per Unit
Sales
Variable Exp.
Contribution margin
Fixed Exp.
Net operating income

b. Would you recommend that the company do as the sales manage suggests? Yes or no?

6.

Refer to the original data. Assume again that the company sold 41,500 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 $2.40 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.