Stratford Company distributes a lightweight lawn chair that sells for $80 per unit. Variable expenses are $40.00 per unit, and fixed expenses total $180,000 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 $59,000 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	$	2,160,000
Variable expenses		1,080,000
Contribution margin		1,080,000
Fixed expenses		180,000
Net operating income	$	900,000

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 12% 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 43,500 units last year. The sales manager is convinced that a 14% reduction in the selling price, combined with a $67,000 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?s 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 43,500 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 $1.90 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.

QUESTION 2

Porter Company ?s most recent contribution format income statement is shown below:

	Total	Per Unit
Sales (42,000 units)	$420,000	$10.00
Variable expenses	336,000	8.00
Contribution margin	84,000	$2.00
Fixed expenses	42,000
Net operating income	$ 42,000

Required:

Prepare a new contribution format income statement under each of the following conditions (consider each case independently): (Do not round intermediate calculations. Round your "Per unit" answers to 2 decimal places.)

1.	The number of units sold increases by 19%.

2.	The selling price decreases by 70 cents per unit, and the number of units sold increases by 19%.

3.	The selling price increases by 50 cents per unit, fixed expenses increase by $8,000, and the number of units sold decreases by 3%.

4.	Variable expenses increase by 20 cents per unit, the selling price increases by 20%, and the number of units sold decreases by 12%.