Question
In: Accounting
Feather Friends, Inc., distributes a high-quality wooden birdhouse that sells for $120 per unit. Variable expenses...
Feather Friends, Inc., distributes a high-quality wooden birdhouse that sells for $120 per unit. Variable expenses are $60.00 per unit, and fixed expenses total $160,000 per year. Its operating results for last year were as follows:
| Sales | $ | 3,360,000 |
| Variable expenses | 1,680,000 | |
| Contribution margin | 1,680,000 | |
| Fixed expenses | 160,000 | |
| Net operating income | $ | 1,520,000 |
|
5. The sales manager is convinced that a 15% reduction in the selling price, combined with a $71,000 increase in advertising, would increase this year's unit sales by 25%. a. If the sales manager is right, what would be this year's net operating income if his ideas are implemented? b. Do you recommend implementing the sales manager's suggestions? 6. The president does not want to change the selling price. Instead, he wants to increase the sales commission by $2.30 per unit. He thinks that this move, combined with some increase in advertising, would increase this year's sales by 25%. How much could the president increase this year's advertising expense and still earn the same $1,520,000 net operating income as last year? Do not prepare an income statement; use the incremental analysis approach. |
||
Solutions
Expert Solution
No. Of units Sold= Total Sales/price per unit
= 3360000/120
= 28000 Units
If sales price reduce by 15% then new sales price is
= 120-(120*15%) =120- 18= $102
Number of units increse in sales= 28000*25%
= 7000
Contribution Margin per unit on new selling price =
=102-60
= $42
Answer 5)
| Particular |
Operating income Statement |
Incremental Income Statement |
|
Contribution Margin (35000 Units) |
1470000 (35000*42) |
(210000) |
| Less: Fixed Cost |
231000 (160000+71000) |
71000 |
| Profit/(Loss) | $1239000 | (281000) |
a) if the sales manager ideas will be implemented the profit will be $ 1239000.
b) It is preferable to not implement to sales manager ideas, because it reduce the profit by $ 281000
Answe 6)
Contribution Margin per unit = 120-(60+2.30) = $57.70
Total Contribution Margin = 35000*57.70
= $2019500
Fixed Cost to earn Profit of $ 1520000 = 2019500-1520000
= $499500
Increment in Fixed Cost = $339500 (499500-160000)
| Particulars | Incremental Income Statement |
| Contribution Margin |
339500 (2019500-168000) |
| Less: Fixed Cost | 339500 |
| Profit | 0 |
The president can increase the advertisement cost by $339500 to earn same profit.
ekkarill92 answered 1 year agoRelated Solutions
Feather Friends, Inc., distributes a high-quality wooden birdhouse that sells for $120 per unit. Variable expenses...
Feather Friends, Inc.,
distributes a high-quality wooden birdhouse that sells for $120 per
unit. Variable expenses are $60.00 per unit, and fixed expenses
total $180,000 per year. Its operating results for last year were
as follows:
Sales
$
3,120,000
Variable
expenses
1,560,000
Contribution
margin
1,560,000
Fixed
expenses
180,000
Net operating
income
$
1,380,000
Required:
Answer each question
independently based on the original data:
4-b. Assume the
president expects this year's sales to increase by 15%. Using the
degree of operating...
Feather Friends, Inc., distributes a high-quality wooden birdhouse that sells for $120 per unit. Variable expenses...
Feather Friends, Inc., distributes a high-quality wooden
birdhouse that sells for $120 per unit. Variable expenses are
$60.00 per unit, and fixed expenses total $160,000 per year. Its
operating results for last year were as follows:
Sales
$
2,880,000
Variable expenses
1,440,000
Contribution margin
1,440,000
Fixed expenses
160,000
Net operating income
$
1,280,000
Required:
Answer each question independently based on the original
data:
1. What is the product's CM ratio?
2. Use the CM ratio to determine the break-even point...
Feather Friends, Inc., distributes a high-quality wooden birdhouse that sells for $120 per unit. Variable expenses...
Feather Friends, Inc., distributes a high-quality wooden
birdhouse that sells for $120 per unit. Variable expenses are
$60.00 per unit, and fixed expenses total $200,000 per year. Its
operating results for last year were as follows:
Sales
$
3,360,000
Variable expenses
1,680,000
Contribution margin
1,680,000
Fixed expenses
200,000
Net operating income
$
1,480,000
Required:
Answer each question independently based on the original
data:
1. What is the product's CM ratio?
2. Use the CM ratio to determine the break-even point...
Feather Friends, Inc., distributes a high-quality wooden birdhouse that sells for $120 per unit. Variable expenses...
Feather Friends, Inc., distributes a high-quality wooden
birdhouse that sells for $120 per unit. Variable expenses are
$60.00 per unit, and fixed expenses total $200,000 per year.
Assume that the operating results for last year were:
Sales
$
3,240,000
Variable expenses
1,620,000
Contribution margin
1,620,000
Fixed expenses
200,000
Net operating income
$
1,420,000
b.
The president expects sales to increase by 18% next year. By
what percentage should net operating income increase?
(Round intermediate calculations to 2 decimal places...
Feather Friends, Inc., distributes a high-quality wooden birdhouse that sells for $120 per unit. Variable expenses...
Feather Friends, Inc., distributes a high-quality wooden
birdhouse that sells for $120 per unit. Variable expenses are
$60.00 per unit, and fixed expenses total $180,000 per year. Its
operating results for last year were as follows:
Sales
$
3,240,000
Variable expenses
1,620,000
Contribution margin
1,620,000
Fixed expenses
180,000
Net operating income
$
1,440,000
Required:
Answer each question independently based on the original
data:
1. What is the product's CM ratio?
2. Use the CM ratio to determine the break-even point...
Feather Friends, Inc., distributes a high-quality wooden birdhouse that sells for $120 per unit. Variable expenses...
Feather Friends, Inc., distributes a high-quality wooden
birdhouse that sells for $120 per unit. Variable expenses are
$60.00 per unit, and fixed expenses total $200,000 per year. Its
operating results for last year were as follows:
Sales
$
2,880,000
Variable expenses
1,440,000
Contribution margin
1,440,000
Fixed expenses
200,000
Net operating income
$
1,240,000
Required:
Answer each question independently based on the original
data:
1. What is the product's CM ratio?
2. Use the CM ratio to determine the break-even point...
Feather Friends, Inc., distributes a high-quality wooden birdhouse that sells for $120 per unit. Variable expenses...
Feather Friends, Inc., distributes a high-quality wooden
birdhouse that sells for $120 per unit. Variable expenses are
$60.00 per unit, and fixed expenses total $200,000 per year. Its
operating results for last year were as follows:
Sales
$
3,000,000
Variable expenses
1,500,000
Contribution margin
1,500,000
Fixed expenses
200,000
Net operating income
$
1,300,000
Required:
Answer each question independently based on the original
data:
5. The sales manager is convinced that a 11% reduction in the
selling price, combined with a...
Feather Friends, Inc., distributes a high-quality wooden birdhouse that sells for $120 per unit. Variable expenses...
Feather Friends, Inc., distributes a high-quality wooden
birdhouse that sells for $120 per unit. Variable expenses are
$60.00 per unit, and fixed expenses total $180,000 per year. Its
operating results for last year were as follows:
Sales
$
3,120,000
Variable expenses
1,560,000
Contribution margin
1,560,000
Fixed expenses
180,000
Net operating income
$
1,380,000
Required:
Answer each question independently based on the original
data:
1. What is the product's CM ratio?
2. Use the CM ratio to determine the break-even point...
Feather Friends, Inc., distributes a high-quality wooden birdhouse that sells for $120 per unit. Variable expenses...
Feather Friends, Inc., distributes a high-quality wooden
birdhouse that sells for $120 per unit. Variable expenses are
$60.00 per unit, and fixed expenses total $180,000 per year.
Required: Answer the following independent questions: 1. What is
the product's CM ratio? 2. Use the CM ratio to determine the
break-even point in dollar sales. 3. Due to an increase in demand,
the company estimates that sales will increase by $44,000 during
the next year. By how much should net operating income...
Feather Friends, Inc., distributes a high-quality wooden birdhouse that sells for $120 per unit. Variable expenses...
Feather Friends, Inc., distributes a high-quality wooden
birdhouse that sells for $120 per unit. Variable expenses are
$60.00 per unit, and fixed expenses total $200,000 per year.
Required:
Answer the following independent questions:
1.
What is the product's CM ratio?
2.
Use the CM ratio to determine the break-even point in dollar
sales.
3.
Due to an increase in demand, the company estimates that sales
will increase by $47,000 during the next year. By how much...
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