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Feather Friends Inc. distributes a high - quality wooden birdhouse that sells for $ 2 0 per unit. Variable expenses are $ 8 per unit,
Feather Friends Inc. distributes a highquality wooden birdhouse that sells for $ per unit. Variable expenses are $ per
unit, and fixed expenses total $ per year. operating results for last year were as follows:
Sales units
Variable expenses
Contribution margin
Fixed expenses
Operating income
$
Required:
Answer the following independent questions:
What is the product's CM ratio?
Use the CM ratio to determine the breakeven point in sales dollars.
Assume this year's total sales increase by $ If the fixed expenses do not change, how much will operating income
increase?
Assuming that the operating results for last year were as above:
Compute the degree of operating leverage based on last year's sales.
a
b The president expects sales to increase by next year. Using the degree of operating leverage from last year, what
percentage increase in operating income will the company realize this year? Calculate the dollar increase in operating
income.
The sales manager is convinced that a reduction in the selling price, combined with a $ increase in advertising.
would increase this year's unit sales by If the sales manager is right, what would be this year's operating income if his
ideas are implemented? Do you recommend implementing the sales manager's sugeestions? Why?
The president does not want to change the selling price. Instead, he wants to increase the sales commission by $I per
unit. He thinks that this move, combined with some increase in advertising. would increase this year's unit sales by
How much could the president increase this year's advertising expense and still earn the same $ operating income
as last
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