Question

Number of units sold = Sales / Selling Price per unit
Number of units sold = \$1,920,000 / \$80
Number of units sold = 24,000

Contribution Margin Ratio = Contribution Margin / Sales
Contribution Margin Ratio = \$960,000 / \$1,920,000
Contribution Margin Ratio = 50%

Breakeven in dollar sales = Fixed Expenses / Contribution Margin Ratio
Breakeven in dollar sales = \$200,000 / 0.50
Breakeven in dollar sales = \$400,000

Increase in Sales = \$43,000

Increase in Net Operating Income = Increase in Sales * Contribution Margin Ratio
Increase in Net Operating Income = \$43,000 * 50%
Increase in Net Operating Income = \$21,500

Degree of Operating Leverage = Contribution Margin / Net Operating Income
Degree of Operating Leverage = \$960,000 / \$760,000
Degree of Operating Leverage = 1.26

% Increase in Sales = 12.00%

Degree of Operating Leverage = % Increase in Net Operating Income / % Increase in Sales
1.26 = % Increase in Net Operating Income / 12.00%
% Increase in Net Operating Income = 15.12%

Selling Price per unit = \$80 - 12% * \$80
Selling Price per unit = \$70.40

Variable Expense per unit = \$40.00

Fixed Expenses = \$200,000 + \$67,000
Fixed Expenses = \$267,000

Number of units sold = 24,000 + 25% * 24,000
Number of units sold = 30,000

No, the manager should not implement these changes as net operating income will decrease by \$115,000

Selling Price per unit = \$80.00

Variable Expense per unit = \$40.00 + \$1.50
Variable Expense per unit = \$41.50

Let increase in advertising be \$x

Fixed Expenses = \$200,000 + \$x

Number of units sold = 24,000 + 25% * 24,000
Number of units sold = 30,000

Net Operating Income = Sales - Variable Expenses - Fixed Expenses
Net Operating Income = Selling Price per unit * Number of units sold - Variable Expense per unit * Number of units sold - Fixed Expenses
\$760,000 = \$80.00 * 30,000 - \$41.50 * 30,000 - (\$200,000 + \$x)
\$760,000 = \$2,400,000 - \$1,245,000 - \$200,000 - \$x
\$x = \$195,000

Increase in advertising expense is \$195,000

#### Earn Coins

Coins can be redeemed for fabulous gifts.

Similar Homework Help Questions
• ### Feather Friends, Inc., distributes a high-quality wooden birdhouse that sells for \$80 per unit. Variable expenses...

Feather Friends, Inc., distributes a high-quality wooden birdhouse that sells for \$80 per unit. Variable expenses are \$40.00 per unit, and fixed expenses total \$200,000 per year. Its operating results for last year were as follows: Sales \$ 2,080,000 Variable expenses 1,040,000 Contribution margin 1,040,000 Fixed expenses 200,000 Net operating income \$ 840,000 Required: Answer each question independently based on the original data: 1. What is the product's CM ratio? 2. Use the CM ratio to determine the break-even point...

• ### Feather Friends, Inc., distributes a high-quality wooden birdhouse that sells for \$80 per unit. Variable expenses...

Feather Friends, Inc., distributes a high-quality wooden birdhouse that sells for \$80 per unit. Variable expenses are \$40.00 per unit, and fixed expenses total \$200,000 per year. Its operating results for last year were as follows: Sales Variable expenses Contribution margin Fixed expenses Net operating income \$2,160,000 1,080,000 1,080,000 200,000 \$ 880,000 Required: Answer each question independently based on the original data: 1. What is the product's CM ratio? 2. Use the CM ratio to determine the break-even point in...

• ### Feather Friends, Inc., distributes a high-quality wooden birdhouse that sells for \$40 per unit. Variable expenses...

Feather Friends, Inc., distributes a high-quality wooden birdhouse that sells for \$40 per unit. Variable expenses are \$20.00 per unit, and fixed expenses total \$200,000 per year. Its operating results for last year were as follows: Sales \$ 960,000 Variable expenses 480,000 Contribution margin 480,000 Fixed expenses 200,000 Net operating income \$ 280,000 Required: Answer each question independently based on the original data: 1. What is the product's CM ratio? 2. Use the CM ratio to determine the break-even point...

• ### Feather Friends, Inc., distributes a high-quality wooden birdhouse that sells for \$80 per unit. Variable expenses...

Feather Friends, Inc., distributes a high-quality wooden birdhouse that sells for \$80 per unit. Variable expenses are \$40.00 per unit, and fixed expenses total \$200,000 per year. Its operating results for last year were as follows: sales Variable expenses Contribution margin Fixed expenses Net operating income \$ 1,920, eee 960, eee 960, eee 2ee, eee 760,eee Required: Answer each question Independently based on the original data: 1. What is the product's CM ratio? 2. Use the CM ratio to determine...

• ### Feather Friends, Inc., distributes a high-quality wooden birdhouse that sells for \$80 per unit. Variable expenses...

Feather Friends, Inc., distributes a high-quality wooden birdhouse that sells for \$80 per unit. Variable expenses are \$40.00 per unit, and fixed expenses total \$180,000 per year. Its operating results for last year were as follows: Sales \$ 2,000,000 Variable expenses 1,000,000 Contribution margin 1,000,000 Fixed expenses 180,000 Net operating income \$ 820,000 Required: Answer each question independently based on the original data: 1. What is the product's CM ratio? 2. Use the CM ratio to determine the break-even point...

• ### Feather Friends, Inc., distributes a high-quality wooden birdhouse that sells for \$80 per unit. Variable expenses...

Feather Friends, Inc., distributes a high-quality wooden birdhouse that sells for \$80 per unit. Variable expenses are \$40.00 per unit, and fixed expenses total \$180,000 per year. Its 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 Required: Answer each question independently based on the original data: 1. What is the product's CM ratio? 2. Use the CM ratio to determine the break-even point...

• ### Feather Friends, Inc., distributes a high-quality wooden birdhouse that sells for \$80 per unit. Variable expenses...

Feather Friends, Inc., distributes a high-quality wooden birdhouse that sells for \$80 per unit. Variable expenses are \$40.00 per unit, and fixed expenses total \$180,000 per year. Its operating results for last year were as follows: Sales Variable expenses Contribution margin Fixed expenses Net operating income \$ 2,160,000 1,080,000 1,080,000 180,000 \$ 900,000 Required: Answer each question independently based on the original data: 1. What is the product's CM ratio? 2. Use the CM ratio to determine the break-even point...

• ### Feather Friends, Inc., distributes a high-quality wooden birdhouse that sells for \$80 per unit. Variable expenses...

Feather Friends, Inc., distributes a high-quality wooden birdhouse that sells for \$80 per unit. Variable expenses are \$40.00 per unit, and fixed expenses total \$180,000 per year. Its 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 Required: Answer each question independently based on the original data: 1. What is the product's CM ratio? 2. Use the CM ratio to determine the break-even point...

• ### Feather Friends, Inc., distributes a high-quality wooden birdhouse that sells for \$80 per unit. Variable expenses...

Feather Friends, Inc., distributes a high-quality wooden birdhouse that sells for \$80 per unit. Variable expenses are \$40.00 per unit, and fixed expenses total \$180,000 per year. Its operating results for last year were as follows: Sales \$ 2,080,000 Variable expenses 1,040,000 Contribution margin 1,040,000 Fixed expenses 180,000 Net operating income \$ 860,000 Required: Answer each question independently based on the original data: 1. What is the product's CM ratio? 2. Use the CM ratio to determine the break-even point...

• ### Feather Friends, Inc., distributes a high-quality wooden birdhouse that sells for \$80 per unit. Variable expenses...

Feather Friends, Inc., distributes a high-quality wooden birdhouse that sells for \$80 per unit. Variable expenses are \$40.00 per unit, and fixed expenses total \$180,000 per year. Its 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 Required: Answer each question independently based on the original data: 1. What is the product's CM ratio? 2. Use the CM ratio to determine the break-even point...