Feather Friends, Inc., distributes a high-quality wooden birdhouse that sells for $40 per unit. Variable expenses are $20.00 per unit, and fixed expenses total $180,000 per year. Its operating results for last year were as follows:

Sales	$	1,040,000
Variable expenses		520,000
Contribution margin		520,000
Fixed expenses		180,000
Net operating income	$	340,000

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 $45,000 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 11%. 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 13% reduction in the selling price, combined with a $60,000 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. If the sales manager's ideas are implemented, how much will net operating income increase or decrease over last year?

6. The president does not want to change the selling price. Instead, he wants to increase the sales commission by $2.40 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 $340,000 net operating income as last year?

1. 2. 3.4A.

4B. 5A. 5B. 6.

Req 1 Req 2 Req3 Req 4A Req 4B Req 5A Req 5B Req 6 What is the product's CM ratio? CM ratio CM ratio % Req 1 Reg 2 Req3 Req 4A Req 4B Req 5A Req 5B Req 6 Use the CM ratio to determine the break-even point in dollar sales. (Do not round intermediate calculations.) Break-even point in dollar sales Req 1 Req 2 Reg 3 Req 4A Req 4B Req 5A Req 5B Req 6 If this year's sales increase by $45,000 and fixed expenses do not change, how much will net operating income increase? Net operating income by Req 1 Reg 1 Req 2 Reg 2 Req3 Req3 Req 4A Reg 4A Req 4B Reg 48 Reg 6 Req 5A Reg SA Req 5B Req SB Reg 6 What is the degree of operating leverage based on last year's sales? (Round intermediate calculations and final answer to 2 decimal places.) Degree of operating leverage Req 1 Req 2 Req 3 Req 4A Req 4B Req 5A Req 5B Req 6 Assume the president expects this year's sales to increase by 11%. Using the degree of operating leverage from last year, what percentage increase in net operating income will the company realize this year? (Round intermediate calculations and final answer to 2 decimal places.) Net operating income increases by Req 1 Req 2 Req 3 Req 4A Req 4B Req 5A Req 5B Req 6 --- The sales manager is convinced that a 13% reduction in the selling price, combined with a $60,000 increase in advertising, would increase this year's unit sales by 25%. 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) Req 1 Req 2 Req 3 Req 4A Req 4B Req 5A Req 5B Reg 58 Req 6 Reg 6 The sales manager is convinced that a 13% reduction in the selling price, combined with a $60,000 increase in advertising, would increase this year's unit sales by 25%. If the sales manager's ideas are implemented, how much will net operating income increase or decrease over last year? (Negative amounts should be input with a minus sign.) Increase (decrease) to net operating income Req 1 Req 2 Req 3 Req 4A Req 4B Req 5A Req 5B Req 6 The president does not want to change the selling price. Instead, he wants to increase the sales commission by $2.40 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 $340,000 net operating income as last year? (Do not round intermediate calculations.) Show less A The amount by which advertising can be increased is