Sales (18,000 units)$360,000

Variable expenses 144,000

Contribution margin 216,000

Fixed expenses 180,000

Operating income$36,000

Feather Friends, Incorporated, distributes a high-quality wooden birdhouse that sells for $20 per unit. Variable expenses are $8 per unit, and fixed expenses total $180,000 per year. Its operating results for last year were as follows:

5A) The sales manager is convinced that a 8% reduction in the selling price, combined with a $28,000 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 operating income if his ideas are implemented?

5B) b. If the sales manager's ideas are implemented, how much will 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 $1 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 $36,000 operating income as last year?