22.00 points Deckyard Company distributes a lightweight lawn chair that sells fo
ID: 2550204 • Letter: 2
Question
22.00 points Deckyard Company distributes a lightweight lawn chair that sells for $51 per unit. Variable expenses are $20.40 per unit, and fixed expenses total $201,960 annually. Required: 1. What is the product's CM ratio? 60 2. Use the CM ratio to determine the break-even point in sales dollars 336,600 3. The company estimates that sales will ncrease by $51,000 during the coming year due to increased demand. By how much should net operating income increase? 30.600 4. Assume that the operating resuits for last year were as follows: Sales 1,683,000 Vanable expenses673.200 Contribution margin 1,003 Fixed expenses 201,960 Net operating income $807,840 a Compute the degree of operating ieverage at the current level of sales (Round your answers to 2 decimal places.) Degree of 1,25Explanation / Answer
1. If sales increase by 20% then by operating leverage net income will increase by following:
INcrease in net income = Operating Leverage x INncrease percentage in sales = 1.25 20% = 25%
Net Income Increase = 807,840 x .25 = 201,960
2. Income Format
Last Year
Last Year
Proposed
Proposed
Total
Per Unit
Total
Per Unit
Sales
43500 x 51 = 2,218,500
51
(43500 x 150%) x 51 x 90% = 2994975
45.9
Variable Cost
43500 x 20.40 = 887,400
20.40
65250 x 20.40 + 45,500 = 1,376,600
21.097
Contribution
1,331,100
1,618,375
Fixed Expense
201,960
201,960
Net Income
1,129,140
25.9572
1,416,415
21.70751
NOTE: Increase in advertising expense is assumedd to be variable expense.
2B. Overall income has increased of the company but overall per unit income has declined therefore, the company should reject the proposal.
Last Year
Last Year
Proposed
Proposed
Total
Per Unit
Total
Per Unit
Sales
43500 x 51 = 2,218,500
51
(43500 x 150%) x 51 x 90% = 2994975
45.9
Variable Cost
43500 x 20.40 = 887,400
20.40
65250 x 20.40 + 45,500 = 1,376,600
21.097
Contribution
1,331,100
1,618,375
Fixed Expense
201,960
201,960
Net Income
1,129,140
25.9572
1,416,415
21.70751
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