Feather Friends, Incorporated, distributes a high-quality wooden birdhouse that sells for $80 per unit. Variable expenses are $40.00 per unit, and fixed expenses total $200,000 per year. Its operating results for last year were as follows:
Sales $1,920,000
Variable expenses $960,000
Contribution margin $960,000
Fixed expenses $200,000
Net operating income $ 760,000
Problem 1: What is the product's CM ratio?
Problem 2: Use the CM ratio to determine the break-even point in dollar sales.
Problem 3: Assume this year's unit sales and total sales increase by 56,000 units and $4,480,000, respectively. If the fixed expenses do not change, how much will net operating income increase?