Req 1 : | |
CM ratio = Contribution margin / Sales = 1080000 / 2160000 | 50% |
Req 2 : | |
Break-even point in dollar sales = Fixed expenses / CM ratio = 180000 / 50% | 360000 |
Req 3 : | |
Increase in net operating income = ( Increase in sales * CM ratio ) - Increase in fixed expense = ( 45000 * 50% ) - 0 | 22500 |
Net operating income | increases | by | 22500 |
Req 4A : | |
Degree of operating leverage = Contribution margin / Net operating margin = 1080000 / 900000 | 1.20 |
Req 4B : | |
Degree of operating leverage = % change in net operating income / % change in sales | |
1.20 = % change in net operating income / 11% | |
% change in net operating income = 1.20 * 11% | 13.20% |
Net operating income increase by | 13.20% |
Req 5 : | |
Last year's unit sales = Sales / Selling price = 2160000 / 80 | 27000 |
After changes : | |
Selling price = Current selling price * ( 1 - % reduction ) = 80 * ( 1 -13% ) | 69.60 |
Fixed expenses = Current fixed expenses + Increase in adverstising expense = 180000 + 64000 | 244000 |
Unit sales = Last year's unit sales * ( 1 + % increase ) = 27000 * ( 1 + 25% ) | 33750 |
a. | |
Sales ( 33750 * 69.60 ) | 2349000 |
(-) Variable expenses ( 33750 * 40 ) | 1350000 |
Contribution margin | 999000 |
(-) Fixed expenses | 244000 |
Net operating income | 755000 |
b. | |
Last year's net operating income | 900000 |
(-) This year's budgeted net operating income | 755000 |
Decrease in net operating income | 145000 |
6. | |
After change : | |
Unit sales = Last year's unit sales * ( 1 + % increase ) = 27000 * ( 1 + 25% ) | 33750 |
Variable expense per unit = Current variable expense per unit + Increase in sales commission per unit = 40 + 1.90 | 41.90 |
Net operating income = Unit sales * ( Selling price - Variable cost per unit ) - Fixed expenses | |
900000 = 33750 * ( 80 - 41.90 ) - Fixed expense | |
900000 = 1285875 - Fixed expense | |
Fixed expense = 1285875 - 900000 | 385875 |
The amount by which advertising can be increase is = Fixed expenses after changes - Current fixed expenses = 385375 - 180000 | 205375 |
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 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 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 are $40.00 per unit, and fixed expenses total $180,000 per year. Its operating results for last year were as follows: points (8 03:38:50 Sales Variable expenses Contribution margin Fixed expenses Net operating income $ 2,160,000 1,080,000 1,080,000 180,000 $ 900,000 eBook Required: Answer each question independently based on the original data: Print 1. What is the product's CM ratio? 2. Use the CM ratio...
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 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 are $20.00 per unit, and fixed expenses total $180,000 per year. Its operating results for last year were as follows: Sales $ 1,080,000 Variable expenses 540,000 Contribution margin 540,000 Fixed expenses 180,000 Net operating income $ 360,000 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 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 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 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...