Feather Friends, Incorporated, distributes a high-quality wooden birdhouse that sells for $40 per unit. Variable expenses are $20.00 per unit, and fixed expenses total $200,000 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 200,000 Net operating income $ 320,000 Required: Answer each question independently based on the original data: 3. Assume this year’s unit sales and total sales increase by 58,000 units and $2,320,000, 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 this year's unit sales to increase by 19%. Using the degree of operating leverage from last year, what percentage increase in net operating income will the company realize this year?
Feather Friends, Incorporated, distributes a high-quality wooden birdhouse that sells for $40 per unit. Variable expenses are $20.00 per unit, and fixed expenses total $200,000 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 | 200,000 |
| Net operating income | $ 320,000 |
Required:
Answer each question independently based on the original data:
3. Assume this year’s unit sales and total sales increase by 58,000 units and $2,320,000, 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 this year's unit sales to increase by 19%. Using the degree of operating leverage from last year, what percentage increase in net operating income will the company realize this year?
Trending now
This is a popular solution!
Step by step
Solved in 3 steps
