# AC 46 - Question Deckyard Company distributes a lightweight...

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Question: Deckyard Company distributes a lightweight lawn chair that sells for \$39 per unit. Variable expenses are \$15.60 per unit, and fixed expenses total \$145,800 annually. Required: 1. What is the product's CM ratio? CM ratio % 2. Use the CM ratio to determine the break-even point in sales dollars. Break-even point in sales dollars \$ 3 . The company estimates that sales will increase by \$47,000 during the coming year due to increased demand. By how much should net operating income increase? (Omit the "\$" sign in your response.) Net operating income increases by \$ 4. Assume that the operating results for last year were as follows: Sales \$ 1,209,000 Variable expenses 483600 Contribution margin 725,400 Fixed expenses 145,080 Net operating income \$ 580,320 a. Compute the degree of operating leverage at the current level of sales. (Round your

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Unformatted text preview: answer to 2 decimal places.) Degree of operating leverage b . The president expects sales to increase by 12% next year. By how much should net operating income increase? Net operating income increases by \$ Answer: 1) Contribution = Sales - Variable costs = \$39 - \$15.60 = \$23.40. CM Ratio = (Contribution / Sales) x 100 = (\$23.40 / \$39) x 100 = 60%. 2) Breakeven point = Fixed Costs / CM ratio = \$145,800 / 60% = \$243,000 3) Net operating income will increase by the contribution generated from the additional sales = \$47,000 x 60% = \$28,200 So, Operating income will increase by \$28,200. 4) a) Degree of operating leverage = Contribution margin / Net operating Income = 725,400 / 580,320 = 1.25 times. b) If sales increases by 12%, the net operating income will increase by 12 x 1.25 times = 15%....
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