Feather Friends, Inc., distributes a high-quality wooden birdhouse that sells for $120 per unit. Variable expenses are $60.00 per unit, and fixed expenses total $180,000 per year. Its operating results for last year were as follows:

Sales	$	3,000,000
Variable expenses		1,500,000
Contribution margin		1,500,000
Fixed expenses		180,000
Net operating income	$	1,320,000

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. If this year's sales increase by $44,000 and fixed expenses do not change, how much will net operating income increase?

4-a. What is the degree of operating leverage based on last year's sales?

4-b. Assume the president expects this year's sales to increase by 16%. 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 14% reduction in the selling price, combined with a $73,000 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. Do you recommend implementing the sales manager's suggestions?

6. The president does not want to change the selling price. Instead, he wants to increase the sales commission by $1.80 per unit. He thinks that this move, combined with some increase in advertising, would increase this year's sales by 25%. How much could the president increase this year's advertising expense and still earn the same $1,320,000 net operating income as last year? Do not prepare an income statement; use the incremental analysis approach.

1.What is the products CM ratio?

CM ratio

50selected answer correct

%

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

Break-even point in dollar sales

$360,000selected answer correct

3. If this year's sales increase by $44,000 and fixed expenses do not change, how much will net operating income increase?

Net operating income

increasesselected answer correct

by

$22,000selected answer correct

4A. What is the degree of operating leverage based on last year's sales? (Round intermediate calculations and final answers to 2 decimal places.)

Degree of operating leverage

0.88selected answer incorrect

4B. Assume the president expects this year's sales to increase by 16%. Using the degree of operating leverage from last year, what percentage increase in net operating income will the company realize this year? (Round your answer to 2 decimal places.)

Net operating income increases by

14.08selected answer incorrect

5A. If the sales manager is right, what would be this year's net operating income if his ideas are implemented? (Do not round intermediate calculations.)

Net operating income (loss)

$1,106,000selected answer incorrect

5B. Do you recommend implementing the sales manager's suggestions?

	Yesradio button unchecked Noradio button checked

6. The president does not want to change the selling price. Instead, he wants to increase the sales commission by $1.80 per unit. He thinks that this move, combined with some increase in advertising, would increase this year's sales by 25%. How much could the president increase this year's advertising expense and still earn the same $1,320,000 net operating income as last year?

The amount by which advertising can be increased is

$306,250selected answer incorrect

Please help. I have answered parts 1-3 correctly but got parts 4a-6 incorrect. Please be clear when explaining and bold the answers. Thanks!