MQ2

Stratford Company distributes a lightweight lawn chalr that sells for $30 per unit. Varlable expenses are 40% of sales, and fixe expenses total $489,600 annually. Required: Answer the following independent questions: 1. What is the product's CM per unit? Contribution margin per unit 2. Use the CM per unit to determine the break-even point in units. Break-even point in units 3. The company estimates that sales will increase by $75.000 during the coming year due to Increased demand. By how much sh net operating income increase? Increase in operating income MGMT8500 - Midterm Exam Saved 4. Assume that the operating results for last year were as follows: 2 Sales Less: Variable expenses Contribution margin Less: Fixed expenses Net operating income $1,020,000 408,000 612,000 489,600 $ 122,400 20 points 2 02:45:16 a. Compute the degree of operating leverage at the current level of sales. (Round your answer to 1 decimal place.) Degree of operating leverage b. The president expects sales to Increase by 30% next year. By how much should net operating Income Increase? Increase in operating income ducation.c GMT8500 - Midterm Exam i Saved 2 5-a. Refer to the original data. Assume that the company sold 36,000 units last year. The sales manager is convinced that a 7% reduction in the selling price, combined with a $140,000 Increase in advertising expenditures, would increase annual unit sales by 40%. Prepare two contribution format Income statements: one showing the results of last year's operations, and one showing what the results of operations would be if these changes were made. (Do not round Intermediate calculations. Round "Per Unlt" answers to 2 decimal places.) nts Last Year Total Proposed Total Per Unit Per Unit S02:44:46 Sales 5.b. Would you recommend that the company do as the sales manager suggests? o Yes No 2:44:09 5-b. Would you recommend that the company do as the sales manager suggests? O Yes 6. Refer to the original data. Assume again that the company sold 36,000 units last year. The president feels that it would be unwise to change the selling price. Instead, she wants to Increase the sales commission by $2 per unit. She thinks that this move, combined with some Increase in advertising, would double annual unit sales. By how much could advertising be increased with profits remaining unchanged? Do not prepare an Income statement: use the incremental analysis approach. Increase in advertisement cost