ezto.mheducation.com Chapter 5 homework s A Chapter 5 homework instructions I he

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ezto.mheducation.com Chapter 5 homework s A Chapter 5 homework instructions I help Question 2 (of 2) Save & Exit Submit 2 50.00 points 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 Required: Answer the following independent questions: 1. What is the product's CM ratio? ratio 2. Use the CM ratio to determine the break-even point in dollar sales. -even S 320,000 3. Due to an increase in demand, the company estimates that sales will increase by $47,000 during the next year. By how much should net operating income increase (or net loss decrease) assuming that fixed expenses do not change? t operating incomeincreases S 25,500

Explanation / Answer

Question - 2

1 and 2 already solved by you are 100% correct.

But (3) Net operating profit increase by 23500

Because, when sales increases by 47000, we have contribution 47000 * 50% = 23500 directly adding to profits. Since no additional fixed costs.

Question - 4

(1) Degree of operating leverage = Contribution / EBIT = 960000 / 800000 = 1.2

(2) Net operating income Increase by = (11% * 1.2) = 13.2

Question - 5

(a)

b) ...... Yes

There is increase in net operating Income so we can accept the sales manager proposal

         Last year        Proposed          33000 Units 49500 Units Total Per unit Total Per Unit Sales 2640000 80 3484800 70.4 Variable expenses 1320000 40 1980000 40 Contribution margin 1320000 40 1504800 30.4 Fixed expenses 160000 160000 Net Operating income 1160000 1344800

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