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

a. CM Ratio 50% Working: a. CM = Sales - Variable Costs (Contribution Margin) = 120 - 60 = 60 b. CM Ratio = Contribution Margin / Sales = 60 / 120 = 50% b. Break-even point in dollar sales $       3,60,000 Working: Break-even point in dollar sales = Fixed Costs / CM Ratio =            1,80,000 / 50% =            3,60,000 c. Net operating income Increase by $       28,000 Working: a. Increase in sales =               56,000 Sales price per unit                     120 Increase in Sales units                     467 b. Increased contribution margin =                 467 x 60 =           28,000 d. Degree of operating Leverage 1.13 Working: Degree of operating Leverage = Contribution Margin/Net Income =         16,20,000 /        14,40,000 = 1.13