Problem 8-1 Performing Basic CVP Analysis (LO1 - CC4; LO2 - CC6, 7, 10)

Stratford Company distributes a lightweight lawn chair that sells for $40 per unit. Variable expenses are $16 per unit, and fixed expenses total $672,000 annually Required: Answer the following independent questions: 1. What is the product's CM ratio? tion margin ratio 2. Use the CM ratio to determine the break-even point in sales dollars. k-even point in sales dollars 3. The company estimates that sales will increase by $115,000 during the coming year due to increased demand. By how much should net operating income increase? n operatin 4. Assume that the operating results for last year were as follows: Sales Less: Variable expenses Contribution margin Less: Fixed expenses Net operating income $1,680,000 672,000 1,008,000 672,000 S 336,000 a. Compute the degree of operating leverage at the current level of sales. (Round your answer to 1 decimal place.)