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Feather Friends, Inc., distributes a high-quality wooden birdhouse that sells for $20 per unit. Variable costs are $8 per unit, and fixed costs total $180,000 per year.
Required:
Answer the following independent questions:
Question 1. What is the product's CM ratio?
Question 2. Use the CM ratio to determine the break-even in sales dollars.
Question 3. Due to an increase in demand, the company estimates that sales will increase by $75,000 during the next year. By how much should the net operating income increase (or net loss decrease) assuming that fixed costs do not change?
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