Reference no: EM132842979
Question - Martin Footwear Co. produces high-quality shoes. To prepare for next year's marketing campaign, the company's controller has prepared the following information for the current year, 2020:
Variable costs (per pair of shoes)
Direct materials $42.00
Direct manufacturing labour 18.00
Variable overhead (manufacturing, marketing, distribution, customer service, and administration) 23.00
Total variable costs $83.00
Fixed costs
Manufacturing $2,580,000
Marketing, distribution, and customer service 495,000
Administrative 755,000
Total fixed costs $3,830,000
Selling price per pair of shoes $183
Expected revenues, 2020 (51,300 units) $9,387,900
Income tax rate 40%
The company controller has set the revenue target for 2021 at $10,467,600 (or 57,200 pairs). He believes an additional marketing cost of $405,000 for advertising in 2021, with all other costs remaining constant, will be necessary to attain the revenue target. Calculate the operating income for 2021 if the additional $405,000 is spent and the revenue target is met.