Stratford Company distributes a lightweight lawn chair that sells for $40 per unit. Variable expenses are $20.00 per unit, and fixed expenses total $180,000 annually.

Required:
1.	What is the product's CM ratio? (Do not round intermediate calculations. Omit the "%" sign in your response.)

CM ratio

%

2.	Use the CM ratio to determine the break-even point in sales dollars. (Do not round intermediate calculations. Round your answer to the nearest dollar amount. Omit the "$" sign in your response.)

Break-even point in sales dollars

$

3.	The company estimates that sales will increase by $47,000 during the coming year due to increased demand. By how much should net operating income increase? (Omit the "$" sign in your response.)

Net operating income increases by

$

4.	Assume that the operating results for last year were as follows:

Sales	$	1,000,000
Variable expenses		500,000
Contribution margin		500,000
Fixed expenses		180,000
Net operating income	$	320,000

a.	Compute the degree of operating leverage at the current level of sales. (Round your answer to 2 decimal places.)

Degree of operating leverage

b.	The president expects sales to increase by 16% next year. By how much should net operating income increase? (Round your intermediate calculations to 2 decimal places and final answer to the nearest dollar amount. Omit the "$" sign in your response.)

Net operating income increases by

$

5.	Refer to the original data. Assume that the company sold 43,500 units last year. The sales manager is convinced that a 13% reduction in the selling price, combined with a $78,000 increase in advertising expenditures, would increase annual unit sales by 50%.

a.	Prepare two contribution format income statements, one showing the results of last year