Feather Friends, Incorporated, distributes a high-quality wooden birdhouse that sells for $20 per unit. Variable expenses are $12 per unit, and fixed expenses total $140,000 per year. Its operating results for last year were as follows: Sales (25,800 units) Variable expenses Contribution margin Fixed expenses Operating income $ 500,000 300,000 200,000 140,000 $ 60,000 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 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? Assume that the operating results for last year were as in the question data. 4-a. Compute the degree of operating leverage based 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 30%. a. If the sales manager is right, what would be this year's operating income if his ideas are implemented? 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 30%. How much could the president increase this year's advertising expense and still earn the same $60,000 operating income as last year? Complete this question by entering your answers in the tabs below. Reg 1 Reg 2 Reg 3 Reg 4A Reg 4B Req 5A Req 5B Reg 6 What is the product's CM ratio? CM ratio %
Reg 1 Reg 2 Reg 3 Reg 4A Reg 4B Req 5A Reg 5B Reg 6 Use the CM ratio to determine the break-even point in sales dollars. (Round your final answer to the nearest whole dollar amount.) Break-even point in dollar sales Reg 1 Req 2 Reg 3 Reg 4A Reg 4B Reg 5A Reg 5B Reg 6 Assume this year's total sales increase by $40,000. If the fixed expenses do not change, how much will operating income increase? Operating income by Reg 1 Reg 2 Reg 3 Req 4A Reg 4B Reg SA Req 5B Reg 6 Assume that the operating results for last year were as in the question data. Compute the degree of operating leverage based on last year's sales. (Round your answer to 2 decimal places.) Degree of operating leverage Reg 1 Reg 2 Reg 3 Reg 4A Reg 4B Reg 5A Reg 5B Reg 6 Assume that the operating results for last year were as in the question data. 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. (Round your intermediate calculations and final percentage answer to 2 decimal places. Round other final answer to the nearest whole dollar amount.) Show less % Operating income increases by Dollar increase in operating income Req 1 Reg 2 Req Req 4A Reg 4B Reg 5 Reg 5B Reg 6 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 30%. If the sales manager is right, what would be this year's operating income if his ideas are implemented? (Do not round intermediate calculations.) Operating income Reg 1 Reg 2 Reg 3 Reg 4A Reg 4B Reg SA Reg 5B Reg 6 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 30%. If the sales manager's ideas are implemented, how much will operating income increase or decrease over last year? (Do not round intermediate calculations. Decrease amount should be input with a minus sign.) Show less Increase (decrease) to operating income Reg 1 Reg 2 Req3 Req 4A Reg 4B Req 5A Req 5B Reg 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 30%. How much could the president increase this year's advertising expense and still earn the same $60,000 operating income as last year? Show less The amount by which advertising can be increased is
