Stratford Company distributes a lightweight lawn chair that sells for $40 per unit. Variable expenses are $20.00 per unit, and fixed expenses total $200,000 annually.

1. What is the product's CM ratio?

2. Use the CM ratio to determine the break-even point in sales dollars.

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:

Sales	$	1,040,000
Variable expenses		520,000
Contribution margin		520,000
Fixed expenses		200,000
Net operating income	$	320,000

a.

Compute the degree of operating leverage at the current level of sales.

b. The president expects sales to increase by 18% next year. By how much should net operating income increase?

5.	Refer to the original data. Assume that the company sold 36,000 units last year. The sales manager is convinced that a 14% reduction in the selling price, combined with a $61,000 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