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Santos company is starting its advertising campaign for next year and has prepared the subsequent budget data based on a zero advertising expenditure:
Normal plant capacity 200,000 units Sales 150,000 units Selling price 25 per unit Variable manufacturing costs 15 per unit Fixed manufacturing costs 800,000 Fixed selling costs 700,000
An advertising agency claims that an aggressive advertising campaign would enable Santos to increase its units sales by 20 percent. Evaluate the maximum amount that Santos Company can pay for advertising and have an operating profit of 200,000 next year? Show solution.
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