Question
Stratford Company distributes a lightweight lawn chair that sells for $40 per unit. Variable expenses are $20.00 per unit, and fixed expenses total $180,000 annually.
Stratford Company distributes a lightweight lawn chair that sells for $40 per unit. Variable expenses are $20.00 per unit, and fixed expenses total $180,000 annually. |
Required: | |
1. | What is the product's CM ratio? (Do not round intermediate calculations. Omit the "%" sign in your response.) |
CM ratio | % |
2. | Use the CM ratio to determine the break-even point in sales dollars. (Do not round intermediate calculations. Round your answer to the nearest dollar amount. Omit the "$" sign in your response.) |
Break-even point in sales dollars | $ |
3. | The company estimates that sales will increase by $47,000 during the coming year due to increased demand. By how much should net operating income increase? (Omit the "$" sign in your response.) |
Net operating income increases by | $ |
4. | Assume that the operating results for last year were as follows: |
Sales | $ | 1,000,000 |
Variable expenses | 500,000 | |
Contribution margin | 500,000 | |
Fixed expenses | 180,000 | |
Net operating income | $ | 320,000 |
a. | Compute the degree of operating leverage at the current level of sales. (Round your answer to 2 decimal places.) |
Degree of operating leverage |
b. | The president expects sales to increase by 16% next year. By how much should net operating income increase? (Round your intermediate calculations to 2 decimal places and final answer to the nearest dollar amount. Omit the "$" sign in your response.) |
Net operating income increases by | $ |
5. | Refer to the original data. Assume that the company sold 43,500 units last year. The sales manager is convinced that a 13% reduction in the selling price, combined with a $78,000 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 |
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