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Saved 0 - Midterm Exam G Stratford Company distributes a lightweight lawn chair that sells for $40 per unit. Variable expenses are 25% of sales, and fixed expenses total $768,000 annually. Required: Answer the following independent questions: 1. What is the product's CM per unit? Contribution margin per unit 5:03 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 $65,000 during the coming year due to increased demand. By how much should net operating income increase? Increase in operating income 8 00 4. Assume that the operating results for last year were as follows: 0 oints Sales Less: Variable expenses Contribution margin Less: Fixed expenses Net operating income $1,280,000 320,000 960,000 768,000 $ 192,000 8 01:54:48 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 40% next year. By how much should net operating income increase? Increase in operating income 5-a. Refer to the original data, Assume that the company sold 34,000 units last year. The sales manager is convinced that a 9% reduction in the selling price, combined with a $136,000 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 Mc 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 34,000 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