Stratford Company distributes a lightweight lawn chair that sells for $40 per unit. Variable expenses are 25% of sales, and fixed expenses total $768,000 annually.

Required: Answer the following independent questions:

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

Sales	$	1,280,000
Less: Variable expenses		320,000
Contribution margin		960,000
Less: Fixed expenses		768,000
Net operating income	$	192,000

b. The president expects sales to increase by 40% next year. By how much should net operating income increase?

5-a. Refer to the original data. Assume that the company sold 34,000 units last year. The sales manager is convinced that a 9% reduction in the selling price, combined with a $136,000 increase in advertising expenditures, would increase annual unit sales by 40%. Prepare two contribution format income statements: one showing the results of last years operations, and one showing what the results of operations would be if these changes were made. (Do not round intermediate calculations. Round "Per Unit" answers to 2 decimal places.)

6. Refer to the original data. Assume again that the company sold 34,000 units last year. The president feels that it would be unwise to change the selling price. Instead, she wants to increase the sales commission by $2 per unit. She thinks that this move, combined with some increase in advertising, would double annual unit sales. By how much could advertising be increased with profits remaining unchanged? Do not prepare an income statement; use the incremental analysis approach.