Reference no: EM132324766

Question

Andrew Ltd produces gumboot and sells it across different states in Australia. The company is considering expanding their product market internationally by next year. The CEO, Andrew, believes that an aggressive campaign is needed next year to maintain the entity's present growth. The financial year begins in July and ends in June. The CFO has presented Ray with the following data for the current year, 2018, for use in preparing next year's advertising campaign.

Cost Schedules

Variable costs

Per Unit ($)

Direct labour per pair 12.00

Direct materials 8.00

Variable overhead 18.00

Variable cost per pair 38.00

Fixed costs

Manufacturing $60,300

Selling 66,000

Administrative 18,600

Selling price per pair $50.00

Sales, 2018: $700,000

Andrew has set the sales target for the year 2019 at a level of $800,000.

Required (show all workings):

a) What is the contribution margin per unit and ratio for 2018?

b) What is the break-even point in units for 2018?

c) How many pair of gumboots would have to be sold in 2019 to earn a target profit of $171,600?

d) Andrew believes that to attain the sales target in the year 2019 additional selling expenses of $34,000 for advertising will be required, with all other costs remaining constant. What will be the sales in dollar for 2019 if Andrew Ltd. spends the additional advertising expenses and expect to earn target profit 140,000 after 30% of income tax rate?