QUESTION 3 Basic CVP Analysis Klein Company distributes a high quality bird feeder that sells for $30 per unit Variable costs are $12 per unit, and fixed costs total $270,000 annually Required Answer the following independent questions What is the product's CM ratio Use the CM ratio to determine the break even point in sales dollars The company estimates that sales will increase by $60,000 during the coming year due to increased demand By how much should operating income increase Assume that the operating results for last year were as follows Sales $600,000 Variable expenses 240,000 Contribution margin 360,000 Fixed expenses 270,000 Operating income $90,000 Compute the degree of operating leverage at the current level of sales The president expects sales to increase by 16 next year By how much should operating income increase Refer to the original data Assume that the company sold 23,000 units last year The sales manager is convinced that a 12 reduction in the selling price, combined with a $40,000 increase in advertising expenditures, would cause annual sales in units to increase 30 Prepare two contribution format income statements, one showing the results of last year's operations and one showing what the results of operations would be if these changes were made Would you recommend that the company do as the sales manager suggests Refer to the original data Assume again that the company sold 23,000 units last year The president feels that it would be unwise to change the selling price Instead, he wants to increase the sales commission by $4 per unit He thinks that this move, combined with some increase in advertising, would increase annual unit sales by 50 By how much could advertising be increased with profits remaining unchanged Do not prepare an income statement use the incremental analysis approach

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QUESTION 3 Basic CVP Analysis Klein Company distributes a high-quality bird feeder that sells for $30 per unit. Variable costs are $12 per unit, and

QUESTION 3

Basic CVP Analysis

Klein Company distributes a high-quality bird feeder that sells for $30 per unit. Variable costs are $12 per unit, and fixed costs total $270,000 annually.

Required:

Answer the following independent questions:

What is the product's CM ratio?
Use the CM ratio to determine the break-even point in sales dollars.
The company estimates that sales will increase by $60,000 during the coming year due to increased demand. By how much should operating income increase?
Assume that the operating results for last year were as follows:

Sales $600,000

Variable expenses 240,000

Contribution margin 360,000

Fixed expenses 270,000

Operating income $90,000

1. Compute the degree of operating leverage at the current level of sales.
2. The president expects sales to increase by 16% next year. By how much should operating income increase?
Refer to the original data. Assume that the company sold 23,000 units last year. The sales manager is convinced that a 12% reduction in the selling price, combined with a $40,000 increase in advertising expenditures, would cause annual sales in units to increase 30%. Prepare two contribution-format income statements, one showing the results of last year's operations and one showing what the results of operations would be if these changes were made. Would you recommend that the company do as the sales manager suggests?
Refer to the original data. Assume again that the company sold 23,000 units last year. The president feels that it would be unwise to change the selling price. Instead, he wants to increase the sales commission by $4 per unit. He thinks that this move, combined with some increase in advertising, would increase annual unit sales by 50%. By how much could advertising be increased with profits remaining unchanged? Do not prepare an income statement; use the incremental analysis approach.