Assignment task:
Feather Friends, Inc., distributes a high-quality wooden birdhouse that sells for $20 per unit. Variable expenses are $8 per unit, and fixed expenses total $180,000 per year. Its operating results for last year were as follows:
Sales 400,000
VC 160,000
CM 240,000
FC 180,000
OI 60,000
Answer each question independently based on the original data.
Q1. What is the product's CM ratio? Use the CM ratio to determine the break-even point in dollar sales. What is the margin of safety percentage?
Q2. List revenue, cost and profit functions of the company, draw the CVP graph in excel.
Q3. Assume this year's unit sales increase by 3,750 units. If the fixed expenses do not change, how much will net operating income increase?
a) What is the degree of operating leverage based on last year's sales?
b) Assume the president expects this year's unit sales to increase by 20%. Using the degree of operating leverage from last year, what percentage increase in net operating income will the company realize this year?
Q4. Assume the company is going to introduce a new line of hummingbird feeder with $15 selling price and $9 variable cost. The expected sales volume is 10,000 units per year and fixed cost will increase by $30,000. What is the new breakeven point? That is, how many birdhouses and feeders must be sold to breakeven?