Feather Friends, Inc., distributes a high-quality wooden birdhouse that sells for $80 per unit. Variable expenses are $40.00 per unit, and fixed expenses total $200,000 per year.

Required:

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 $52,000 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$2,080,000Variable expenses1,040,000Contribution margin1,040,000Fixed expenses200,000Net operating income$840,000

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

b. The president expects sales to increase by 11% next year. By what percentage should net operating income increase?