Problem $6-23($Algo$)$ CVP Applications; Contribution Margin Ratio: Degree of Operating Leverage $[$LO$6-$

$1,$ LO$6-3,$ LO$6-4,$ LO$6-5,$ LO$6-8]$

Feather Friends, Incorporated, distributes a high$-$quality wooden birdhouse that sells for $$80$ per unit. Variable expenses are $$40\mathrm{.}00$

per unit, and fixed expenses total $$160,000$ per year. Its operating results for last year were as follows:

Required:

Answer each question independently based on the original data:

What is the product's CM ratio?

Use the CM ratio to determine the break$-$even point in dollar sales.

Assume this year's unit sales and total sales increase by $59,000$ units and $$4,720,000,$ respectively. If the 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 unit 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?

The sales manager is convinced that a $15\%$ reduction in the selling price, combined with a $$66,000$ 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?

The president does not want to change the selling price. Instead, he wants to increase the sales commission by $$2\mathrm{.}20$ per unit. He

thinks that this move, combined with some increase in advertising, would increase this year's unit sales by $25\%.$ How much could the

president increase this year's advertising expense and still earn the same $$880,000$ net operating income as last year?

Answer is complete but not entirely correct.

Complete this question by entering your answers in the tabs below.

What is the product's CM ratio? Assume this year's unit sales and total sales increase by $59,000$ units and $$4,720,000,$ respectively. If the fixed expenses do

not change, how much will net operating income increase? $($Dc Req $4$B intermediate calculations.$)$

Net operating income

increases

by

$$2,200,000$ The sales manager is convinced that a $15\%$ reduction in the selling price, combined with a $$66,000$ 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.$)$ The sales manager is convinced that a $15\%$ reduction in the selling price, combined wit$$ a $$00,vu$ 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.$)$