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 (25,000 units)

500.000

Variable expenses

Contribution margin

Fixed expenses

Operating income

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.

1. 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.
2. 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%

1. If the sales manager is right, what would be this year's operating income if his ideas are implemented?
2. If the sales manager's ideas are implemented, how much will operating income increase or decrease over last year?

Feather Friands, Incorporated, distributes a high-quality woodein birdhouse that solis for $20 per unit. Variabie expenses are. $12 per unit and fixed expenises tota $140,800 per year. Its operating results for last year wore as tollows: Required: Answer each question independently based an the original data: 1. What is the product's CM rato? 2. Uso 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 fixpd exponsos do not change, how much wil operating income inconaso? Assume that the operating results for last year were as in the questicn 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 deyree of operating leverage from isst yeac what percentage incraase in operating income wil the corpany realze this year? Calculate the dollar increase in operating income. 5. Tho sales marager is coevinced that a 12% teduction in the solling peice, combned with a $32,000 incteaso in advertising, would incroase this year's unit sales by 39%. 3. If the sates manager is nght. what would be thit yeia'ts operating inceme if his ideas are implemented? b. If the sales manegar's ideas are implemented, how much will operatisg income nciease or decrease over last year