Reference no: EM132772801

Connelly Inc., a manufacturer of quality electric ice cream makers, has experienced a steady growth in sales over the past few years. Because her business has grown, Jan DeJaney, the president, believes she needs an aggressive advertising campaign next year to maintain the company'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$26.00

Direct materials 31.00

Variable overhead 13.00

Total variable costs$70.00

Fixed costs Manufacturing$91,000

Selling 42,500

Administrative 370,000

Total fixed costs$503,500

Selling price per unit$130

Expected sales (units) 68,000

Required:

Problem 1. If the costs and sales price remain the same, what is the projected operating profit for the coming year?

Problem 2. What is the breakeven point in units for the coming year?

Problem 3. Jan has set the sales target for 71,050 ice cream makers, which she thinks she can achieve by an additional fixed selling expense of $196,365 for advertising. All other costs remain as per the data in the above table. What will be the operating profit if the additional $196,365 is spent on advertising and sales rise to 71,050 units?

Problem 4-a. What will be the new breakeven point if the additional $196,365 is spent on advertising?

Problem 4-b. Prepare a contribution income statement at the new breakeven point.

Problem 4-c. What is the percentage change in both fixed costs and in the breakeven point?

Problem 5. If the additional $196,365 is spent for advertising in the next year, what is the sales level (in units) needed to equal the current year's operating profit at 68,000 units?