Reference no: EM13579845

Island Novelties, Inc., of Palau makes two products, Hawaiian Fantasy and Tahitian Joy. Present revenue, cost, and sales data for the two products follow: Hawaiian Fantasy Tahitian Joy Selling price per unit $5.30 $7.95 Variable expenses per unit $3.18 $1.59 Number of units sold annually 260 104 Fixed expenses total $610 per year. The Republic of Palau uses the U.S. dollar as its currency. Requirement 1: Assuming the sales mix given above, do the following: (a) Prepare a contribution format income statement showing both dollar and percent columns for each product and for the company as a whole. (Round your dollar values to 2 decimal places.

Omit the "tiny_mce_markerquot; and "%" signs in your response.) Hawaiian Fantasy Tahitian Joy Total Amount % Amount % Amount % Sales $ $ $ Variable expenses Contribution margin $ $ Fixed expenses $ (b) Compute the break-even point in dollars for the company as a whole and the margin of safety in both dollars and percent. (Round your answers to 2 decimal places. Omit the "tiny_mce_markerquot; and "%" signs in your response.) Break-even point in dollars $ Margin of safety $ Margin of safety percentage % Requirement 2: The company has developed a new product to be called Samoan Delight. Assume that the company could sell 52 units at $10.60 each. The variable expenses would be $7.95 each. The company's fixed expenses would not change. (a) Prepare another contribution format income statement, including sales of the Samoan Delight (sales of the other two products would not change). (Round your dollar values to 2 decimal places. Omit the "tiny_mce_markerquot; and "%" signs in your response.)

Hawaiian Fantasy Tahitian Joy Samoan Delight Total Amount % Amount % Amount % Amount % Sales $ $ $ $ Variable expenses Contribution margin $ $ $ Fixed expenses $ (b) Compute the company's new break-even point in dollars and the new margin of safety in both dollars and percent. (Round your answers to 2 decimal places. Omit the "tiny_mce_markerquot; and "%" signs in your response.) Break-even point in dollars $ Margin of safety $ Margin of safety percentage % Feather Friends, Inc., distributes a high-quality wooden birdhouse that sells for $20 per unit. Variable costs are $10.00 per unit, and fixed costs total $165,000 per year. 3.value: 2.00 points Requirement 3: Due to an increase in demand, the company estimates that sales will increase by $56,000 during the next year. By how much should net operating income increase (or net loss decrease) assuming that fixed costs do not change?

(Omit the "tiny_mce_markerquot; sign in your response.) Increased net operating income $ rev: 02-09-2011 check my workeBook Links (5)references 4.value: 2.00 points Requirement 4: Assume that the operating results for last year were: Sales $560,000 Variable expenses 280,000 Contribution margin 280,000 Fixed expenses 165,000 Net operating income $115,000 (a) Compute the degree of operating leverage at the current level of sales. (Round your answer to 2 decimal places.) Degree of operating leverage (b) The president expects sales to increase by 17% next year. By what percentage should net operating income increase? (Round your answer to 2 decimal places. Omit the "%" sign in your response.) Increase in net operating income % rev: 02-09-2011 check my workeBook Links (5)references 5.value: 2.00 points Requirement 5: Refer to the original data. Assume that the company sold 29,000 units last year.

The sales manager is convinced that a 13% reduction in the selling price, combined with a $77,000 increase in advertising, would cause annual sales in units to increase by one-third. (a) 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. (Round your per unit values to 2 decimal places and other answers to the nearest dollar amount. Omit the "tiny_mce_markerquot; sign in your response.) Last Year: 29,000 units Proposed: 38,667 units Amount Per Unit Amount Per Unit Sales $ $ $ $ Variable expenses Contribution margin $ $ Fixed expenses Net operating income $ $ (b) Would you recommend that the company do as the sales manager suggests? rev: 02-09-2011 check my workeBook Links (5)references 6.value: 2.00 points Requirement 6: Refer to the original data.

Assume again that the company sold 29,000 units last year. The president does not want to change the selling price. Instead, he wants to increase the sales commission by $1.7 per unit. He thinks that this move, combined with some increase in advertising, would increase annual sales by 35%. By how much could advertising be increased with profits remaining unchanged? (Negative amount should be indicated by a minus sign. Do not prepare an income statement; use the incremental analysis approach. Omit the "tiny_mce_markerquot; sign in your response.) The amount by which advertising can be increased $ rev: 02-09-2011.