Feather Friends, Inc., distributes a high-quality wooden birdhouse that sells for $20 per unit. Variable expenses are $12.00 per unit, and fixed expenses total $140,000 per year. Its operating results for last year were as follows:

Sales (25,000 units)	500,000
Variable Expenses	300,000
Contribution Margin	200,000
Fixed Expenses	140,000
Operating Income	60,000

1. What is the product's CM ratio?

2.. Use the CM Ratio to determine the break-even point in sales dollars.

3.. Assume this year's total sales increase by $40,000 if the fixed expenses do not change how much will operating income increase?

4. Assume that the operating results for last year were as in the guestion data,

4 a, Compute the degree of operatng leverage pased on last year's sales

4 b, The president expects sales to increase by 24% next year. Using the degree of operating leverage from last year, what percentage increase in operating income will the company realize this year? Calculate the dollar increase in operating income.

5. The sales manager is convinced that a 12% reduction in the selling price, combined with a $32,000 increase in advertising, would increase this year's unit sales by 25%.

5 a. If the sales manager is right, what would be this year's operating income if his ideas are implemented?

5 b. If the sales manager's ideas are implemented, how much will 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 $1 per unit. He thinks that this move, combined with some increase in advertising, would increase this year's unit sales by 25%. How much could the president increase this year's advertising expense and still earn the same $96,000 operating income as last year?