Problem 5-23 CVP Applications; Contribution Margin Ratio: Degree of Operating Leverage (LO5-1, LO5-3, LO5-4, LO5-5, LO5-8] 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 $180,000 per year. Its operating results for last year were as follows: Sales Variable expenses Contribution margin Fixed expenses Net operating income $3,240,000 1,620,000 1, 620,000 180,000 $1,440,000 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 $41,000 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 14%. 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 15% reduction in the selling price, combined with a $80,000 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 $2.20 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 $1,440,000 net operating income as last year? Complete this question by entering your answers in the tabs below. Reg 1 Reg 2 Req3 Req 4A Reg 4B Req 5A Req 5B Reg 6 What is the product's CM ratio? CM ratio Complete this question by entering your answers in the tabs below. Reg 1 Reg 2 Req3 Req 4A Req 4B Req 5A Req 5B Reg 6 Use the CM ratio to determine the break-even point in dollar sales. (Do not round intermediate calculations.) Break-even point in dollar sales Complete this question by entering your answers in the tabs below. Reg 1 Reg 2 Req3 Req 4A Reg 4B Reg 5A Reg 5B Reg 6 If this year's sales increase by $41,000 and fixed expenses do not change, how much will net operating income increase? Net operating income by Complete this question by entering your answers in the tabs below. Req1 Reg 2 Req3 Req 4A Reg 4B Req 5A Reg 5B Reg 6 What is the degree of operating leverage based on last year's sales? (Round intermediate calculations and final answers to 2 decimal places.) Degree of operating leverage Complete this question by entering your answers in the tabs below. Req1 Req 2 Req3 Req 4A Req 4B Req 5A Req 5B Reg 6 Assume the president expects this year's sales to increase by 14%. Using the degree of operating leverage from last year, what percentage increase in net operating income will the company realize this year? (Round intermediate calculations and final answer to 2 decimal places.) Net operating income increases by % Complete this question by entering your answers in the tabs below. Reg 1 Reg 2 Reg 3 Req 4A Req 4B Reg 5A Reg 5B Req6 The sales manager is convinced that a 15% reduction in the selling price, combined with a $80,000 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) Complete this question by entering your answers in the tabs below. Req 1 Reg 2 Req3 Req 4A Req 4B Req 5A Reg 5B Reg 6 The sales manager is convinced that a 15% reduction in the selling price, combined with a $80,000 increase in advertising, would increase this year's unit sales by 25%. If the sales manager's ideas are implemented, how much will net operating income increase or decrease over last year? (Negative amounts should be input with a minus sign.) Increase (decrease) to net operating income Complete this question by entering your answers in the tabs below. Reg 1 Req 2 Req3 Req 4A Req 4B Req 5A Req 5B Reg 6 The president does not want to change the selling price. Instead, he wants to increase the sales commission by $2.20 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 $1,440,000 net operating income as last year? Show less The amount by which advertising can be increased is
