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Stratford Company distributes a lightweight lawn chair thath sells for $30 per unit. Variable expenses are 20% of sales and fixed expenses total $595,200 annually.

Stratford Company distributes a lightweight lawn chair thath sells for $30 per unit. Variable expenses are 20% of sales and fixed expenses total $595,200 annually.

FINANCIAL ACCOUNTING
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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Stratford Company distributes a lightweight lawn chair thath sells for $30 per unit. Variable expenses are 20% of sales and fixed expenses total $595,200 annually.

 

sub question 4 and 5

Submit 4. Assume that the operating results for last year were as follows: Sales Less: Variable expenses Contribution margin Less: Fixed expenses $ 930, 000 186,000 744,000 595, 200 Net operating income $ 148,800 a. Compute the degree of operating leverage at the current level of sales. (Round your answer to 1 decimal place.) Degree of operating leverage b. The president expects sales to increase by 30% next year. By how much should net operating income increase? Increase in operating income
Transcribed Image Text:Submit 4. Assume that the operating results for last year were as follows: Sales Less: Variable expenses Contribution margin Less: Fixed expenses $ 930, 000 186,000 744,000 595, 200 Net operating income $ 148,800 a. Compute the degree of operating leverage at the current level of sales. (Round your answer to 1 decimal place.) Degree of operating leverage b. The president expects sales to increase by 30% next year. By how much should net operating income increase? Increase in operating income
5-a. Refer to the original data. Assume that the company sold 32,000 units last year. The sales manager is convinced that a 8% reduction in the selling price, combined with a $144,000 increase in advertising expenditures, would increase annual unit sales by 40%. Prepare two contribution format income statements: one showing the results of last year's operations, and one showing what the results of operations would be if these changes were made. (Do not round intermediate calculations. Round "Per Unit" answers to 2 decimal places.) Last Year Proposed Total Per Unit Total Per Unit Sales b. Would you recommend that the company do as the sales manager suggests?
Transcribed Image Text:5-a. Refer to the original data. Assume that the company sold 32,000 units last year. The sales manager is convinced that a 8% reduction in the selling price, combined with a $144,000 increase in advertising expenditures, would increase annual unit sales by 40%. Prepare two contribution format income statements: one showing the results of last year's operations, and one showing what the results of operations would be if these changes were made. (Do not round intermediate calculations. Round "Per Unit" answers to 2 decimal places.) Last Year Proposed Total Per Unit Total Per Unit Sales b. Would you recommend that the company do as the sales manager suggests?
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