Feather Friends, Incorporated, distributes a high-quality wooden birdhouse that sells for $20 per unit. Variable...
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Accounting
Feather Friends, Incorporated, distributes a high-quality wooden birdhouse that sells for $20 per unit. Variable expenses are $8 per unit, and fixed expenses total $180,000 per year. Its operating results for last year were as follows:
Sales (18,000 units)
$
360,000
Variable expenses
144,000
Contribution margin
216,000
Fixed expenses
180,000
Operating income
$
36,000
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 sales dollars.
3. Assume this years total sales increase by $55,000. If the fixed expenses do not change, how much will operating income increase?
Assume that the operating results for last year were as in the question data.
4-a. Compute the degree of operating leverage based on last years sales.
4-b. The president expects sales to increase by 22% next year. Using the degree of operating leverage from last year, what percentage increase in operating income will the company realize this year? Calculate the dollar increase in operating income.
(how would you calculate Dollar increase in operating income?)
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