Hickory Company manufactures two products-14,000 units of Product Y and 6,000 units of Product Z. The company uses a plantwide overhead rate based on direct labor-hours. It is considering implementing an activity-based costing (ABC) system that allocates all $684,000 of its manufacturing overhead to four cost pools. The following additional information is available for the company as a whole and for Products Y and Z: Activity Cost Pool Machining Machine setups Product design General factory Activity Measure Machine-hours Number of setups Number of products Direct labor-hours Estimated Overhead Cost $ 200,000 $ 100,000 $ 84,000 $ 300,000 Expected Activity 10,000 MHS 200 setups 12,000 DLHS Activity Measure Machine-hours Number of setups Number of products Direct labor-hours Product Y Product Z 7,000 3,000 50 150 1 8,000 4,000 11. Using the plantwide overhead rate, what percentage of the total overhead cost is allocated to Product Y and Product Z? (Round your "Percentage" answers to 1 decimal place.) Product Y Product Z Manufacturing overhead Feather Friends, Inc., distributes a high-quality wooden birdhouse that sells for $120 per unit. Variable expenses are $60.00 per unit, and fixed expenses total $160,000 per year. Its operating results for last year were as follows: Sales Variable expenses Contribution margin Pixed expenses Net operating income $ 3,360,000 1,680,000 1,680,000 160,000 $ 1,520,000 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 $53,000 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 18%. 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 11% reduction in the selling price, combined with a $63,000 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 $2.50 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 6. The president does not want to change the selling price. Instead, he wants to increase the sales commission by $2.50 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 $1,520,000 net operating income as last year? Complete this question by entering your answers in the tabs below. Req1 Req2 Req3 Req 4A Req 48 Req 5A Req 58 Reg 6 The sales manager is convinced that a 11% reduction in the selling price, combined with a $63,000 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)
