Feather Friends, Inc. distributes a high-quality wooden birdhouse that sells $20 per unit. Variable expenses are $8 per unit, and fixed expenses total $180,000 per year. Its operating results for last year were as follows:

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

1. What is the products CM ratio?
2. Use the CM ratio to determine the break-even point in dollar sales.
3. If this years sales increase by $75,000 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 years sales? B. Assume the president expects this years sales to increase by 20%. 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 10% reduction in the selling price, combined with a $30,000 increase in advertising, would increase this years unit sales by 25%. If the sales manager is right, what would be this years net operating income if his ideas are implemented/ Do you recommend implanting the sales managers suggestions? Why?

This years net operating income is computed as follows:

	Sales (25,000 units $18 per unit)..................
	Variable expenses..........................................
	Contribution margin........................................
	Fixed expenses .............................................
	Net operating income.....................................

6. The president does not want to change the selling price. Instead, he wants to increase the sales commission by $1 per unit. He thinks that this move, combined with some increase in advertising, would increase this years sales by 25%. How much could the president increase this years advertising expense and still earn the same $60,000 net operating income as last year?

Expected total contribution margin: 20,000 units 1.25 $11.00 per unit*......................	$275,000
Present total contribution margin..................................
Incremental contribution margin, and the amount by which advertising can be increased with net operating income remaining unchanged....................................