Kowkeela has recently opened The Cooker Shop, a store that specializes in one type of cooker. Kowkeela has just received a degree in business and she is anxious to apply the principles she has learned to her business. In time, she hopes to open a chain of cooker shops. As a first step, she has prepared the following analysis for her new store: Sales price per cooker . . . . . . . . . . . $60 Variable expenses per cooker. . . . . . $19 Fixed expenses per year: - - - Building rental . . . . . . . . . . . . . . $14800 - - - Equipment depreciation . . . . . . $5800 - - - Selling . . . . . . . . . . . . . . . . . . . . . $15000 - - - Administrative . . . . . . . . . . . . . . $17000

(a) [2 mark] During the first year, the store sold only 2900 cookers. Prepare a contribution approach income statement.

unanswered

(b) [1 mark] In relation to (a), Kowkeelas degree of operating leverage (in two decimal places) is

(c) [1 mark] In relation to (a), Kowkeela is confident that with a more intense sales effort and with a more creative advertising program she can increase sales by 60% next year. The expected percentage increase in net operating income (in 2 decimal places)

(d) [1 mark] Refer to the original data, Kowkeela has decided that she must earn at least $17300 the first year to justify her time and effort. The number of cookers to be sold to reach this target profit is

(e) [2 marks] What will be the impact of a reduction of CM ratio on break-even point and why?