Microsoft Excel Modelling Assignment.

The following data relate to Feather Friends Inc.

PROBLEM $4-18$ Cost$-$Volume$-$Profit Analysis; Degree of Operating Leverage $[$LO$1,$ LO$3,$

LO$4,$ LO$5,$ LO$8]$

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 $(20,000$ units$)$

Variable expenses

Contribution margin $....................\frac{160,000}{240,000}$

Fixed expenses...................... $\frac{180,000}{\text{\$}60,000}$

Required:

Answer the following independent questions:

What is the product's CM ratio?

Use the $CM$ ratio to determine the break$-$even point in sales dollars.

Assume this year's total sales increase by $$75,000.$ If the fixed expenses do not change, how much

will operating income increase?

Assuming that the operating results for last year were as above:

a$.$ Compute the degree of operating leverage based on last year's sales,

b$.$ The president expects sales to increase by $20\%$ next year, Using the degree of operating lever$-$

age from last year, what percentage increase in operating income will the company realize this

year? Calculate the dollar increase in operating income.

The sales manager is convinced that a $10\%$ reduction in the selling price, combined with a $$30,000$

increase in advertising, would increase this year's unit sales by $25\%.$ If the sales manager is right,

what would be this year's operating income if his ideas are implemented? Do you recommend im$-$

plementing the sales manager's suggestions? Why?

Q$6$: For the upcoming year, Feather Friends Inc. in anticipating increasing the selling price to

$$25$ per unit instead of $$20$ per unit. How would this affect questions $1$ to $5$ above. All other data

remains the same.