Some of my answers are wrong 2 value: 50.00 points Feather Friends, Inc., distri
ID: 2548654 • Letter: S
Question
Some of my answers are wrong
2 value: 50.00 points 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 $180,000 per year. Required: Answer the following independent questions What is the product's CM ratio? CM ratio 50:% 2. Use the CM ratio to determine the break-even point in dollar sales. Break-even point in sales dollars$ 360,000 3. Due to an increase in demand, the company estimates that sales will increase by $41,000 during the next year. By how much should net operating income increase (or net loss decrease) assuming that fixed expenses do not change? Net operating income increases $20,500Explanation / Answer
Req 1: Contribution: Sales - variable expense = 40-20 =20 per unit CM ratio : Contribution/ sales *100 = 20/40 *100 = 50% Req 2: Fixed cost: $ 180,000 CM ratio: 50% Break even point in $ : Fixed cost / Cm raio = 180,000 /50% = $360,000 Req 3: Sales inncrease: $ 41000 CM ratio: 50% Contribution or Net income increase by : $ 41000*50%: $ 20,500 Req 4-a: Degree of operating leverage: Contribution/ Net income = 500,000 /320,000 = 1.5625 Req 4-b: Sales increase by 14% DOL: 1.5625 Net income increase by (1.5625 *14%): 21.88% Req 5: CONTRIBUTION INCOME STATEMENT Last Year 33000 units Proposed 49500 units Total Per unit Total Per unit Sales 1320000 40 1683000 34 Variable expense 660000 20 990000 20 Contribution margin 660000 20 693000 14 Fixed expense 180000 252000 Net operating income 480000 441000 Req 5-b: No company shall not be go as per advice Req 6: Incremental Analysis: Incremental revenue (33000 units @ 40) 1320000 Less: Incremental Cost (66000*21.70 -33000*20) 772200 The amount by which advertising cost can be increased 547800
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