Feather Friends Inc distributes a highquality wooden birdhou

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 Variable expenses Contribution margin Fixed expenses $3,240,000 1,620,000 1,620,000 180,000 $1,440,000 Net operating income

Solution

1) CM ratio contribution margin/sales 1,620,000/3,240,000 0.5 50% 2) Break even sales in dollars fixed cost/contribution margin ratio 180,000/50% 360000 3) Net operating income will increase by 56000*50% 28000 4-a) Degree of operating leverage contribution margin/net income 1,620,000/1,440,000 1.125 or 1.13 4b) percentage increase in net income 17%*1.13 19.21 or 19.21% 5)-a) unit sale = 3,240,000/120 27000 now unit sales =27000*125% 33750 selling price new = 120*87%=$104.4 sales        (27000*104.40) (27000*104.40) 2818800 Variable expense (27000*60) 1620000 Contribution margin 1198800 fixed expense (180,000+69000) 249000 Net operating income 949800 b) No per unit 6) sales 120 Variable expense 62.1 Contribution margin 57.9 increase in sales 25% (27000*57.90) - (180,000+x) = 1,440,000 1563300- 180,000-x =1,440,000 x                                 = 56,700 asnwer