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 $180,000 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   180,000 Net operating income $ 340,000   1.  If this year's sales increase by $59,000 and fixed expenses do not change, how much will net operating income increase? 2. The sales manager is convinced that a 13% reduction in the selling price, combined with a $73,000 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?

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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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 $180,000 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   180,000
Net operating income $ 340,000

 

1.  If this year's sales increase by $59,000 and fixed expenses do not change, how much will net operating income increase?

2. The sales manager is convinced that a 13% reduction in the selling price, combined with a $73,000 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?

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