Reference no: EM132969578
Question - Raul Dean is president of Baylor Plastic Division of Waco Industries. Management is considering a new product line that features a large bird posed on a running posture. Called "Chargin' Cardinal", this product is expected tp have a worldwide market appeal and become the mascot of many high school and university athletic teams. Expected variable unit costs are as follows:
Direct materials - 89.00
Direct labor - 54.80
Production supplies - 4.20
Selling expenses - 67.00
The following are annual fixed costs:
Depreciation expenses - 260,000
Advertising - 650,000
Other fixed costs - 115,100
The company plans to sell the product for P550.
1. Using the contribution margin approach, compute the number of products the company must sell to (a) break-even and (b) earn a profit of P703,500.
2. Continuing with the same approach, compute the number of products that must be sold to earn a target profit of P1,402,300 if advertising costs rise by P400,000.
3. Assuming the original information and sales of 10,000 units, compute the new selling price the company must use to make P1,314,900 profit.
4. According to the vice president of marketing, Joyce Dean, the most optimistic annual sales estimate for the product would be 25,000 items. How much more can be spent on fixed advertising costs if the highest possible selling price the company can charge is P465.00, if variable costs cannot be reduced, and if target net income for 25,000 unit sales is P2,510,000?
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