Feather Friends, Inc., distributes a high-quality wooden birdhouse that sells for $20 per unit. Variable expenses are $8 per unit, and fixed expenses total $180,000 per year.Answer the following independent questions: (Do only question 4,5)What is the product's CM ratio?Use the CM ratio to determine the break-even point in dollar sales.Due to an increase in demand, the company estimates that sales will increase by $75,000 during the next year. By how much should net operating income increase (or net loss decrease) assuming that fixed expenses do not change?Refer to the original data. Assume that the company sold 18,000 units last year. The sales manager is convinced that a 10% reduction in the selling price, combined with a $30,000 increase in advertising, would increase annual unit sales by one-third. Prepare two contribution format income statements, one showing the results of last year's operations and one showing the results of operations if these changes are made. Would you recommend that the company do as the sales manager suggests?Refer to the original data. Assume again that the company sold 18,000 units last year. The president does not want to change the selling price. Instead, he wants to increase the sales commission by $1 per unit. He thinks that this move, combined with some increase in advertising, would increase annual sales by 25%. By how much could advertising be increased with profits remaining unchanged?

Solution.. Selling price per unit = $20. Variable cost per unit = $8 Fixed costs = $180,000 per…

Answered: Feather Friends, Inc., distributes a…

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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Feather Friends, Inc., distributes a high-quality wooden birdhouse that sells for $20 per unit. Variable expenses are $8 per unit, and fixed expenses total $180,000 per year.

Answer the following independent questions: (Do only question 4,5)

What is the product's CM ratio?
Use the CM ratio to determine the break-even point in dollar sales.
Due to an increase in demand, the company estimates that sales will increase by $75,000 during the next year. By how much should net operating income increase (or net loss decrease) assuming that fixed expenses do not change?
Refer to the original data. Assume that the company sold 18,000 units last year. The sales manager is convinced that a 10% reduction in the selling price, combined with a $30,000 increase in advertising, would increase annual unit sales by one-third. Prepare two contribution format income statements, one showing the results of last year's operations and one showing the results of operations if these changes are made. Would you recommend that the company do as the sales manager suggests?
Refer to the original data. Assume again that the company sold 18,000 units last year. The president does not want to change the selling price. Instead, he wants to increase the sales commission by $1 per unit. He thinks that this move, combined with some increase in advertising, would increase annual sales by 25%. By how much could advertising be increased with profits remaining unchanged?

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Feather Friends, Inc., distributes a high-quality wooden birdhouse that sells for $20 per unit. Variable expenses are $8 per unit, and fixed expenses total $180,000 per year.

Answer the following independent questions:

Refer to the original data. Assume that the company sold 18,000 units last year. The sales manager is convinced that a 10% reduction in the selling price, combined with a $30,000 increase in advertising, would increase annual unit sales by one-third. Prepare two contribution format income statements, one showing the results of last year's operations and one showing the results of operations if these changes are made. Would you recommend that the company do as the sales manager suggests?
Refer to the original data. Assume again that the company sold 18,000 units last year. The president does not want to change the selling price. Instead, he wants to increase the sales commission by $1 per unit. He thinks that this move, combined with some increase in advertising, would increase annual sales by 25%. By how much could advertising be increased with profits remaining unchanged?

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