Synchronous Assignment -CVP analysis

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:

1. What is the products CM ratio?

CM Ratio = (Contribution Margin / Sales) x 100

CM Ratio = (240,000/400,000)x100 = 60%

Determine the break-even point in units and dollars. What is the margin of safety percentage?

Breaking Even Point Sales = Fixed Cost / Contribution Margin Ratio

Breaking Even Point Sales = 180,000/60% = 300,000

2. Assume this years unit sales increase by 3,750 units. If the fixed expenses do not change, how much will net operating income increase?

1. What is the degree of operating leverage based on last years sales?

2. Assume the president expects this years 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?

3. 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?