Problem
Stratford Company distributes a lightweight lawn chair that sells for $15.00 per unit. Variable costs are $6.00 per unit and fixed costs total $180,000 annually.
Required:
Answer the following independent questions
1. What is the product's CM ratio?
2. Use the CM ration to determine the break-even point in sales dollars.
3. The company estimates that sales will increase by $45,000 during the coming year due to increased demand. By how much should net operating income increase?
Assume that the following results for last year were as follows:
Sales $360,000
Variable costs . $144,000
Contribution margin . $216,000
Fixed expenses $180,000
Net Operating income . $36,000
a. Compute the degree of operating leverage at the current level of sales.
b. The president expects sales to increase by 15% next year. By how much should net operating income increase?