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.

Answer the following independent questions:

1.What is the product's CM ratio?

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

3.Due to an increase in demand, the company estimates that sales will increase by $75,000 during the next year. By how much should net operating income increase (or net loss decrease) assuming that fixed expenses do not change?

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

Sales	$	400,000
Variable expenses		160,000
Contribution margin		240,000
Fixed expenses		180,000
Net operating income	$	60,000

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

b.	The president expects sales to increase by 20% next year. By what percentage should net operating income increase?

5.	Refer to the original data. Assume that the company sold 18,000 units last year. The sales manager is convinced that a 10% reduction in the selling price, combined with a $30,000 increase in advertising, would increase annual unit sales by one-third.

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