Dog Dandy distributes a dog collar made of wooden beads that sells for $40 per unit. Variable expenses are $20 per unit, and fixed expenses total $168,000 per year. Its operating results for last year were as follows: Sales Variable expenses Contribution margin Fixed expenses Operating income CM ratio Required: Answer each of the following independent questions based on the original data. 1. What is the product's CM ratio? Break-even point in dollar sales % 2. Use the CM ratio to determine the break-even point in dollar sales. Decrease in operating income 3. Assume this year's unit sales and total sales decrease by $54,000. If the fixed expenses do not change, how much will operating income decrease? Degree of operating leverage $560,000 280,000 4. What is the degree of operating leverage based on last year's sales? (Round your answer to 1 decimal place.) 280,000 168,000 $112,000 Decrease in operating income 5. Assume the this year's unit sales will decrease by 20% next year. Using the degree of operating leverage from last year, what percentage decrease in operating income will the company incur this year? Operating income Yes 6-a. The sales manager is convinced that a 10% reduction in the selling price, combined with a $24,000 increase in advertising, would increase this year's unit sales by 40 %. If the sales manager is right, what would be this year's operating income if his ideas are implemented? No % 6-b. Do you recommend implementing the sales manager's suggestions?
Dog Dandy distributes a dog collar made of wooden beads that sells for $40 per unit. Variable expenses are $20 per unit, and fixed expenses total $168,000 per year. Its operating results for last year were as follows: Sales Variable expenses Contribution margin Fixed expenses Operating income CM ratio Required: Answer each of the following independent questions based on the original data. 1. What is the product's CM ratio? Break-even point in dollar sales % 2. Use the CM ratio to determine the break-even point in dollar sales. Decrease in operating income 3. Assume this year's unit sales and total sales decrease by $54,000. If the fixed expenses do not change, how much will operating income decrease? Degree of operating leverage $560,000 280,000 4. What is the degree of operating leverage based on last year's sales? (Round your answer to 1 decimal place.) 280,000 168,000 $112,000 Decrease in operating income 5. Assume the this year's unit sales will decrease by 20% next year. Using the degree of operating leverage from last year, what percentage decrease in operating income will the company incur this year? Operating income Yes 6-a. The sales manager is convinced that a 10% reduction in the selling price, combined with a $24,000 increase in advertising, would increase this year's unit sales by 40 %. If the sales manager is right, what would be this year's operating income if his ideas are implemented? No % 6-b. Do you recommend implementing the sales manager's suggestions?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
Transcribed Image Text:Dog Dandy distributes a dog collar made of wooden beads that sells for $40 per unit. Variable
expenses are $20 per unit, and fixed expenses total $168,000 per year. Its operating results for last
year were as follows:
Sales
Variable expenses
Contribution margin
Fixed expenses
Operating income
CM ratio
Required:
Answer each of the following independent questions based on the original data.
1. What is the product's CM ratio?
Break-even point in dollar sales
%
2. Use the CM ratio to determine the break-even point in dollar sales.
Decrease in operating income
3. Assume this year's unit sales and total sales decrease by $54,000. If the fixed expenses do not
change, how much will operating income decrease?
Degree of operating leverage
$560,000
280,000
4. What is the degree of operating leverage based on last year's sales? (Round your answer to 1
decimal place.)
280,000
168,000
$112,000
Decrease in operating income
5. Assume the this year's unit sales will decrease by 20% next year. Using the degree of operating
leverage from last year, what percentage decrease in operating income will the company incur this
year?
Operating income
Yes
6-a. The sales manager is convinced that a 10% reduction in the selling price, combined with a
$24,000 increase in advertising, would increase this year's unit sales by 40%. If the sales manager is
right, what would be this year's operating income if his ideas are implemented?
No
%
6-b. Do you recommend implementing the sales manager's suggestions?
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