Problem 8-1 Performing Basic CVP Analysis (LO1 - CC4; LO2 - CC6, 7, 10) Stratford Compony distributes a Eghtweight lown chair that sells for $25 per unit. Variable expense-5 are 40% of sales, and foxed experses total \$135,000 annualy. Required: Answer the following independent questions: 1. What is the product's CM per unit? 2. Use the CM per unit to determine the break even point in units. 3. The company estimates that sales will increase by $40,000 during the coming year due to increased demand. By how much should net operating income increase? 4. Assume that the operating results for last year were as follows: a. Compute the degree of operating leverage at the current lovel of saies. (found your answer to 1 decimal place.) b. The acesident expects sales to increase by 25% next yeac . Ay how inuch should net operothg income increase?: 5-a. Refer to the ofiginel data. Assume that the compary sold 29000 units last year. The sales manager is convinced that a 10% reductiontin the seling price, combined with a 566,000 increase in advertising expenditures, would increase anncal unit sales by 40% Prepete two contribution format income statements: one showing the results of last year's operations, and ane showing what the results of operations would be if these changes were made. (Do not round intermediate calculations, Round "Per Unit" answers to 2 decimal places.) 5-b. Would you recommend that the company do as the sales manager suggests? Yes No 6. Refer to the original data. Assume again that the company sold 29,000 units last year. The president feels that it would be unwise to change the seling price. Instead, she wants to increase the sales commission by $3 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. Problem 8-1 Performing Basic CVP Analysis (LO1 - CC4; LO2 - CC6, 7, 10) Stratford Compony distributes a Eghtweight lown chair that sells for $25 per unit. Variable expense-5 are 40% of sales, and foxed experses total \$135,000 annualy. Required: Answer the following independent questions: 1. What is the product's CM per unit? 2. Use the CM per unit to determine the break even point in units. 3. The company estimates that sales will increase by $40,000 during the coming year due to increased demand. By how much should net operating income increase? 4. Assume that the operating results for last year were as follows: a. Compute the degree of operating leverage at the current lovel of saies. (found your answer to 1 decimal place.) b. The acesident expects sales to increase by 25% next yeac . Ay how inuch should net operothg income increase?: 5-a. Refer to the ofiginel data. Assume that the compary sold 29000 units last year. The sales manager is convinced that a 10% reductiontin the seling price, combined with a 566,000 increase in advertising expenditures, would increase anncal unit sales by 40% Prepete two contribution format income statements: one showing the results of last year's operations, and ane showing what the results of operations would be if these changes were made. (Do not round intermediate calculations, Round "Per Unit" answers to 2 decimal places.) 5-b. Would you recommend that the company do as the sales manager suggests? Yes No 6. Refer to the original data. Assume again that the company sold 29,000 units last year. The president feels that it would be unwise to change the seling price. Instead, she wants to increase the sales commission by $3 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
