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 o high-quality wooden birdhouse that sells for $80 per unit Variable expenses are $40.00 per unit, and fixed expenses total $180,000 per year. Its opereting results for last yeor were as follows: Sales Variable expenses Contribution margin Fixed expenses Net operating income s 2,88a,e89 1,900,e88 1,800,880 180,888 S 820,800 Required: Answer each question independently based on the original dote: 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 $55,000 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 12%. Using the degree of cperating 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 $61,000 increase in advertising, would increase this year's unit sales by 25%. e. If the seles manager is right, what would be this year's net operating income if his ideas are implemented? b Do you recommend implementing the sales manager's suggestions? 6 The president dces not want to change the selling price. Instead, he wants to increase the sales commission by $190 per unit He president increase this year's adivertising expense and still earn the seme $820,000 net operating income as last year? that this move. combined with some increase in advertising, would increase this year's sales by 25% How much could the