Need to know how this problem is worked out. Need all work. Thank you! A manufac
ID: 2691305 • Letter: N
Question
Need to know how this problem is worked out. Need all work. Thank you!
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 ot maintain the campany'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 $13.50
Direct Materials $14.50
Variable Overhead $6.00
Total variable costs $34.00
Fixed Costs:
Manufacturing $82,500
Selling $42,000
Administrative $356,000
Total Fixed Costs $480,500
Selling price per unit $65.00
Expected Sales (Units) $30,000
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 the units for the coming year?
3. Jan has set the sales target for 35,000 ice cream makers which she thinks she can achieve b an additional fixed selling expense of $200,000 for advertising. All other costs remain as in requirement 1. What will be the operating profit if the additional $200,000 is spent on advertising and sales rise to 35,000 units?
4. What will be the new breakeven point if the additional $200,000 is spent on advertising?
5. If the additional $200,000 is spent for advertising in the next year, what is the required sales level in units to equal the current year's income at 30,000 units?
Explanation / Answer
1. Sales = variable cost + fixed cost + target operating profit 30,000($65) = 30,000($34) + $480,500 + N N = $449,500 ============================= 2. BE units: $65Q = $34Q + $480,500 Q = 15,500 units ========= 3. Operating profit: 35,000($65)-35,000($34)-$480,500-$200,000 = N N = $404,500 (operating profit falls by $45,000 = $31x5,000 - $200,000, from $449,500 to $404,500 as a result of the plan to increase sales with increased advertising) ========== 4. BE units: $65Q = $34Q + $680,500 Q = 21,952 units (operating profit is lower, per part 3 above, and breakeven is also higher) ============= 5. $65Q = $34Q + $680,500 + $449,500 Q = 36,452 units (to justify the advertising plan, sales would have to rise to at least 36,452 units, somewhat above the projected 35,000 units)Related Questions
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