# Feather Friends, Inc., distributes a gh-quality wooden birdhouse that sells for \$80 per unit. Variable expenses are \$40.00 per unit, and

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by \$2.40 per unit. He tnks that ts move, combined with some increase in advertising, would increase ts year’s unit sales by 25%. How much could the president increase ts year’s advertising expense and still earn the same \$820,000 net operating income as last year?

Feather Friends, Inc., distributes a gh-quality wooden birdhouse that sells for \$80 per unit. Variable expenses are \$40.00 per unit, and fixed expenses total \$180,000 per year. Its operating results for last year were as follows: Sales \$ 2,000,000 Variable expenses 1,000,000 Contribution margin 1,000,000 Fixed expenses 180,000 Net operating income \$ 820,000 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 ts year’s unit sales and total sales increase by 59,000 units and \$4,720,000, 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 ts year’s unit sales to increase by 16%. Using the degree of operating leverage from last year, what percentage increase in net operating income will the company realize ts year? 5. The sales manager is convinced that a 15% reduction in the selling price, combined with a \$71,000 increase in advertising, would increase ts year’s unit sales by 25%. a. If the sales manager is right, what would be ts year’s net operating income if s 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 \$2.40 per unit. He tnks that ts move, combined with some increase in advertising, would increase ts year’s unit sales by 25%. How much could the president increase ts year’s advertising expense and still earn the same \$820,000 net operating income as last year?