Stratford Company distributes a lightweight lawn chair that sells for $120 per unit Variable expenses are $60 00 per unit, and fixed expenses total $160,000 annually Required Answer the following independent questions 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 $54,000 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 $ 3,120,000 Variable expenses 1,560,000 Contribution margin 1,560,000 Fixed expenses 160,000 Net operating income $ 1,400,000 a Compute the degree of operating leverage at the current level of sales (Round your answer to 2 decimal places ) b The president expects sales to increase by 11 next year By how much should net operating income increase (Round your answer to the nearest dollar ) 5 Refer to the original data Assume that the company sold 42,000 units last year The sales manager is convinced that a 10 reduction in the selling price, combined with a $62,000 increase in advertising expenditures, would increase annual unit sales by 50 a Prepare two contribution format income statements, one showing the results of last years operations and one showing what the results of operations would be if these changes were made (Do not round intermediate calculations Round your Per unit answers to 2 decimal places ) b Would you recommend that the company do as the sales manager suggests Yes No 6 Refer to the original data Assume again that the company sold 42,000 units last year The president feels that it would be unwise to change the selling price Instead, he wants to increase the sales commission by $2 20 per unit He 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

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Stratford Company distributes a lightweight lawn chair that sells for $120 per unit. Variable expenses are $60.00 per unit, and fixed expenses total $160,000 annually.

Required:

Answer the following independent questions.

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 $54,000 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	$	3,120,000
Variable expenses		1,560,000

Contribution margin		1,560,000
Fixed expenses		160,000

Net operating income	$	1,400,000

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

b.	The president expects sales to increase by 11% next year. By how much should net operating income increase? (Round your answer to the nearest dollar.)

5.	Refer to the original data. Assume that the company sold 42,000 units last year. The sales manager is convinced that a 10% reduction in the selling price, combined with a $62,000 increase in advertising expenditures, would increase annual unit sales by 50%.

a.	Prepare two contribution format income statements, one showing the results of last years operations and one showing what the results of operations would be if these changes were made. (Do not round intermediate calculations. Round your "Per unit" answers to 2 decimal places.)

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

	Yes
	No

Refer to the original data. Assume again that the company sold 42,000 units last year. The president feels that it would be unwise to change the selling price. Instead, he wants to increase the sales commission by $2.20 per unit. He 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.