please help only for 5 ab and 6 thank you Feather and c dist

please help only for 5 a.b. and 6. thank you!

Feather and c., distributes a high-quality wooden birdhouse that sells for $80 per unit. Variable expenses are $40.00 per unit, fixed expenses total $200,000 per year. Its operating results for last year were as follows: Sales Variable expenses Contribution margin Fixed expenses Net operating income 2,160,000 1,080,000 1,080,000 200,000 880,000 Required: Answer each question independently based on trie original data 1. What is the product\'s CM ratio? 2. Use the CM ratio to determine the break-even point in dollar sales 3. If this year\'s sales increase by $42,000 and fixed expenses do not change, how much will net operating income increase? 4-a. What is the degree of operating leverage based on last year\'s sales? 4-b Assume the president expects this year\'s sales to increase by 12%. Using the degree of operating leverage from last year, what percentage increase in net operating income will the company realize this year? 5. The sales manager is convinced that a 15% reduction in the selling price, combined with a $79,000 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 $1.90 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 $880,000 net operating income as last year? Complete this question by entering your answers in the tabs below. Req 1 Req 2 Req 3 Req 4A Req 4B Req 5A Req 58 Req 6 The sales manager is convinced that a 15% reduction in the selling price, combined with a $79,000 increase in advertising would increase this year\'s unit sales by 25%. If the sales manager is right, what would be this year\'s net operating income if his ideas are implemented? (Do not round intermediate calculations.)

Solution

5

a)

Analyzing the recommendation -

New sale price = 80 $ * 85%

                         = 68 $

Existing sales volume = 2160000 / 80

                                      = 27000 Units

New sales volume = 27000 * 125 %

                                 = 33750 Units

Statement of net operating income

        Sales                              2295000 $

       (-) Variable expense       - 1350000 $

      (-) Fixed Cost                  - 200000 $

     (-) Extra Advertising cost -79000 $

__________________________________________

Net operating income = 666000 $

b) Net operating income has reduced from 880000 $ to 666000 $. therefore the sales manger\'s suggestion should not be implemented.

6

Analyzing the recommendation

      Sale (80*33750) 2700000 $

Less Sales comm    - 64125 $

        ( 33750* 1.9 )

   Less Variable cost        - 1350000 $

   Less Fixed cost            - 200000 $  

__________________________________

Net operating income    = 1085875 $

before advertising

Earning to be maintained = (880000 )$   

_______________________________

Amount that can be        = 205875 $

spend for advertising

Note - Only part 5 and 6 are solved as stated by student