Feather Friends, Incorporated, distributes a high-quality wooden birdhouse that sells for $120 per unit. Variable expenses are $60.00per unit, and fixed expenses total $200,000 per year. Its operating results for last year were as follows:SalesVariable expensesContribution marginFixed expensesNet operating income$ 3,120,0001,560,0001,560,000200,000$ 1,360,000Required: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 dollar sales.3. Assume this year's unit sales and total sales increase by 55,000 units and $6,600,000, respectively. If the fixed expenses do notchange, how much will net operating income increase?4-a. What is the degree of operating leverage based on last year's sales?4-b. Assume the president expects this year's unit sales to increase by 19%. Using the degree of operating leverage from last year,what percentage increase in net operating income will the company realize this year?5. The sales manager is convinced a 13% reduction in the selling price, combined with a $61,000 increase in advertising, wouldincrease this year's unit sales by 25%.a. If the sales manager is right, what would be this year's net operating income if his ideas are implemented?b. If the sales manager's ideas are implemented, how much will net operating income increase or decrease over last year?6. The president does not want to change the selling price. Instead, he wants to increase the sales commission by $1.60 per unit. Hethinks this move, combined with some increase in advertising, would increase this year's unit sales by 25%. How much could thepresident increase this year's advertising expense and still earn the same $1,360,000 net operating income as last year?

· CVP analysis is used to identify the changes in costs and volume affect a company's operating…

Answered: Feather Friends, Incorporated,…

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter16: Cost-volume-profit Analysis

Section: Chapter Questions

Problem 2CE

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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 $160,000 per year. Its operating results for last year were as follows: Sales $ 2,240,000 Variable expenses 1,120,000 Contribution margin 1,120,000 Fixed expenses 160,000 Net operating income $ 960,000 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 dollar sales. 3. Assume this year’s unit sales and total sales increase by 48,000 units and $3,840,000, respectively. If the fixed expenses do not change, how much will net operating income increase? 4-a. What is the degree of operating leverage based on last year's sales? 4-b. Assume the president expects this year's unit sales to increase by 17%. Using the degree of operating leverage from last year, what percentage increase in net…
Feather Friends, Inc., distributes a high-quality wooden birdhouse that sells for $120 per unit. Variable expenses are $60.00 per unit, and fixed expenses total $200,000 per year. Its operating results for last year were as follows: Sales $ 3,000,000Variable expenses 1,500,000Contribution margin 1,500,000Fixed expenses 200,000Net operating income $ 1,300,000 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 dollar sales. 3. If this year's sales increase by $53,000 and fixed expenses do not change, how much will net operating income increase? 4-a. What is the degree of operating leverage based on last year's sales? 4-b. Assume the president expects this year's sales to increase by 10%. Using the degree of operating leverage from last year, what percentage increase in net operating income will the company realize this year? 5. The sales manager is convinced that a…
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