.Connelly, Inc., a manufacturer of quality electric ice cream makers, has experienced a steady growth in sales over the past few years.
Since her business has grown, Jan DeJaney, the president, believes she needs an aggressive advertising campaign next year to maintain the company's growth.
To prepare for the growth, the accountant prepared the following data for the current year:
Variable costs per ice cream maker:
Direct labor $14.00
Direct materials 17.00
Variable overhead 7.00
Total variable costs $38.00
Fixed costs:
Manufacturing $117,000
Selling 57,000
Administrative 466,000
Total fixed costs $640,000
Selling price per unit $70.00
Expected sales (units) 78,500
Required:
1. If the costs and sales price remain the same, what is the projected operating profit for the coming year?
2. What is the break-even point in units for the coming year?
(Round up to the nearest whole number)
3. Jan has set the sales target for 82,700 ice cream makers which she thinks she can achieve by an additional fixed selling expense of $211,200 for advertising.
All other costs remain as per the data in the above table.
What will be the operating profit if the additional $211,200 is spent on advertising and sales rise to 82,700 units?
What will be the new break-even point if the additional $211,200 is spent on advertising?
(Round answer up to nearest whole number)
4. Prepare a contribution income statement at the new break-even point.
5. What is the percentage change in both fixed costs and in the break-even point?
(Answers as whole percentages rounded to 2 decimal places)
6. If the additional $211,200 is spent for advertising in the next year, what is the sales level (in units) needed to equal the current year's income at 78,500 units?
(Round answer up to nearest whole number).