**Feather Friends, Inc. Case Study**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 $160,000 per year. Its operating results for last year were as follows:- **Sales**: $1,040,000- **Variable expenses**: $520,000- **Contribution margin**: $520,000- **Fixed expenses**: $160,000- **Net operating income**: $360,000**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 this year’s unit sales and total sales increase by 48,000 units and $1,920,000, 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?** **b. Assume the president expects this year’s unit sales to increase by 14%. Using the degree of operating leverage from last year, what percentage increase in net operating income will the company realize this year?**5. **The sales manager is convinced that a 10% reduction in the selling price, combined with a $66,000 increase in advertising, would increase this year’s unit sales by 25%.** **a. If the sales manager is right, what would be this year’s net operating income if his 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 $2.00 per unit. He thinks that this move, combined with some increase in advertising, would increase this year’s unit sales by 25%. How much could the president increase this year’s advertising expense and still earn the same $360,000 net operating income as last year?**Complete this question by entering your answers in the tabs below:- Req 1- Req 2- Req 3- Req 4A- Req 4B- Req 5A

1) Given: Selling price = $ 40 Variable price = $ 20 Fixed expenses = $ 160,000

Answered: 1. What is the product's CM ratio?

Business

Accounting

1. What is the product's CM ratio?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Concept explainers

Manufacturing Costs

Manufacturing cost is the total cost of procuring or producing a product. In other words, the manufacturing cost is the cost that an individual or business owner undertakes for the manufacturing of goods.

Question

**Feather Friends, Inc. Case Study**

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 $160,000 per year. Its operating results for last year were as follows:

- **Sales**: $1,040,000
- **Variable expenses**: $520,000
- **Contribution margin**: $520,000
- **Fixed expenses**: $160,000
- **Net operating income**: $360,000

**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 this year’s unit sales and total sales increase by 48,000 units and $1,920,000, 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?**
**b. Assume the president expects this year’s unit sales to increase by 14%. Using the degree of operating leverage from last year, what percentage increase in net operating income will the company realize this year?**

5. **The sales manager is convinced that a 10% reduction in the selling price, combined with a $66,000 increase in advertising, would increase this year’s unit sales by 25%.**
**a. If the sales manager is right, what would be this year’s net operating income if his 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 $2.00 per unit. He thinks that this move, combined with some increase in advertising, would increase this year’s unit sales by 25%. How much could the president increase this year’s advertising expense and still earn the same $360,000 net operating income as last year?**

Complete this question by entering your answers in the tabs below:
- Req 1
- Req 2
- Req 3
- Req 4A
- Req 4B
- Req 5A

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