Stratford Company distributes a lightweight lawn chair that sells for $80 per un
ID: 2900804 • Letter: S
Question
Stratford Company distributes a lightweight lawn chair that sells for $80 per unit. Variable expenses are $40.00 per unit, and fixed expenses total $180,000 annually.
What is the product's CM ratio? (Do not round intermediate calculations.)
Use the CM ratio to determine the break-even point in sales dollars. (Do not round intermediate calculations. Round your answer to the nearest dollar amount. )
The company estimates that sales will increase by $44,000 during the coming year due to increased demand. By how much should net operating income increase?
1,000,000
820,000
Compute the degree of operating leverage at the current level of sales. (Round your answer to 2 decimal places.)
The president expects sales to increase by 20% next year. By how much should net operating income increase? (Round your intermediate calculations to 2 decimal places and final answer to the nearest dollar amount.)
Refer to the original data. Assume that the company sold 34,500 units last year. The sales manager is convinced that a 13% reduction in the selling price, combined with a $72,000 increase in advertising expenditures, would increase annual unit sales by 50%.
Prepare two contribution format income statements, one showing the results of last year
Stratford Company distributes a lightweight lawn chair that sells for $80 per unit. Variable expenses are $40.00 per unit, and fixed expenses total $180,000 annually.
Explanation / Answer
Stratford Company distributes a lightweight lawn chair that sells for $80 per unit. Variable expenses are $40.00 per unit, and fixed expenses total $180,000 annually.1) CM% = TCM/Sales = (80$ - 40$)/80$ = 50%
2) TFC/CM% = 180000/.50 = 3,60,000
3) Change in Sales X CM% = 27,000
4) a) TCM/Net operating Income = (960000/780000) = 1.23
b) 17% x 1.2 = 20.91
(780000 x 20.91%) = 163098
5) a)
b) No, the changes should not be made because the projected OI is lower than last years OT.
6)Gross sales: 34,500 x $120 = $4,140,000
Gross profit: 4,140,000 - 2,070,000 - 180,000 = $1,890,000
Gross profit at 2x the sales: $1,890,000 + 2,070,000 - (69,000 x 2.40) = $3,794,400
Excess available for advertizing: $3,794,400 - 1,890,000 = $1,904,400
Q5
Q5
Last year
Projected