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Eagle Company makes the MusicFinder, a sophisticated satellite radio. Eagle has experienced a steady growth in sales for the past five years. However, Ms. Luray, Eagle's CEO, believes that to maintain the company's present growth will require an aggressive advertising campaign next year. To prepare for the campaign, the company's accountant, Mr. Bednarik, has prepared and presented to Ms. Luray the following data for the current year, Year 1: Variable costs: Direct labor (per unit) $ 83 Direct materials (per unit) 39 Variable overhead (per unit) 18 Total variable costs (per unit) $ 140 Fixed costs (annual): Manufacturing $ 399,000 Selling 290,000 Administrative 793,000 Total fixed costs (annual) $ 1,482,000 Selling price (per unit) 401 Expected sales revenues, Year 1 (28,000 units) $ 11,228,000 Eagle has an income tax rate of 35 percent. Ms. Luray has set the sales target for Year 2 at a level of $12,832,000 (or 32,000 radios). Required: What is the projected after-tax operating profit for Year 1? A. What is the After Tax Operating Profit? b) What is the break-even point in units for Year 1? (Round up to the nearest whole unit.) What's the break-even point? (c) Ms. Luray believes that to attain the sales target (32,000 radios) will require additional selling expenses of $289,000 for advertising in Year 2, with all other costs remaining constant. What will be the after-tax operating profit for Year 2 if the firm spends the additional $289,000? What's the After-tax operating profit? (d) What will be the break-even point in sales dollars for Year 2 if the firm spends the additional $289,000 for advertising? (Solve by computing volume in units first. Round up to the nearest whole unit.) Break-even in Sales? (e) If the firm spends the additional $289,000 for advertising in Year 2, what is the sales level in dollars required to equal the Year 1 after-tax operating profit? (Solve by computing volume in units first. Round up to the nearest whole unit.) What is the Sales Level? (f) At a sales level of 32,000 units, what is the maximum amount the firm can spend on advertising to earn an after-tax operating profit of $760,000? Maximum Advertising Costs?

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