Stratford Company distributes a lightweight lawn chair that sells for $60 per unit. Variable expenses are 25% of sales, and fixed expenses total $922,500 annually.

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

Sales	$	2,460,000
Less: Variable expenses		615,000
Contribution margin		1,845,000
Less: Fixed expenses		922,500
Net operating income	$	922,500

a. Compute the degree of operating leverage at the current level of sales. (Round your answer to 1 decimal place.)

b. The president expects sales to increase by 60% next year. By how much should net operating income increase?

5-a. Refer to the original data. Assume that the company sold 43,000 units last year. The sales manager is convinced that a 12% reduction in the selling price, combined with a $154,000 increase in advertising expenditures, would increase annual unit sales by 30%. 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.)

	Last Year		Proposed
	Total	Per Unit	Total	Per Unit
Sales