ShawnXu Enterprises recorded the following transactions for the just completed January 2010:

a.	$89,000 in raw materials were requisitioned for use in production. Of this amount, $78,000 was for direct materials and the remainder was for indirect materials.
b.	Total labor wages of $132,000 were incurred and paid in cash. Of this amount, $112,000 was for direct labor and the remainder was for indirect labor.
	c. Additional manufacturing overhead costs of $143,000 were incurred and paid.
d.	Manufacturing overhead costs of $152,000 were applied to jobs using the company's predetermined overhead rate.

XuShawn, Inc. distributes a high-quality wooden birdhouse that sells for $20 per unit. Variable costs are $8 per unit, and fixed costs total $180,000 per year.

Required:

1. What is the product's CM ratio? Show your work. 2 pts

2. Due to an increase in demand, the company estimates that sales will increase by $75,000 during the next year. By how much should net operating income increase (or net loss decrease) assuming that fixed costs do not change? Show your work. 2 pts

3. . 3. Refer to the original data. Assume that the company sold 18,000 units last year. The sales manager is convinced that a 10% reduction in the selling price, combined with a $30,000 increase in advertising, would cause annual sales in units to increase by one-third. Use incremental analysis, please determine the impact of these changes on the Company%u2019s net operating income.

Would you recommend that the company do as the sales manager suggests?

Answer sheet for Part 3:

Incremental change in contribution margin: 3 pts

Less: incremental change in fixed expenses: 1.5 pts

Incremental change in net operating income: 1 pts