Reference no: EM132761719
Problem - Stratford Company distributes a lightweight lawn chair that sells for $30 per unit. Variable expenses are 40% of sales, and fixed expenses total $313,200 annually.
Required - Answer the following independent questions:
1. What is the product's CM per unit?
2. Use the CM per unit to determine the break-even point in units.
3. The company estimates that sales will increase by $50,000 during the coming year due to increased demand. By how much should net operating income increase?
4. Assume that the operating results for last year were as follows:
Sales $870,000
Less: Variable expenses 348,000
Contribution margin 522,000
Less: Fixed expenses 313,200
Net operating income $208,800
a. Compute the degree of operating leverage at the current level of sales.
b. The president expects sales to increase by 30% next year. By how much should net operating income increase?
5-a. Refer to the original data. Assume that the company sold 31,000 units last year. The sales manager is convinced that a 10% reduction in the selling price, combined with a $80,000 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 decimal places.) results of operations would be if these changes were made.