onnelly Inc., a manufacturer of quality electric ice creammakers, has experienced a steady growth in sales over the past fewyears. Because her business has grown, Jan DeJaney, the president,believes she needs an aggressive advertising campaign next year tomaintain the company’s growth. To prepare for the growth, theaccountant prepared the following data for the current year:
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| Variable costs per ice cream maker | | | |
| Direct labor | $ | 23.00 | |
| Direct materials | | 27.50 | |
| Variable overhead | | 11.50 | |
| Total variable costs | $ | 62.00 | |
| Fixed costs | | | |
| Manufacturing | $ | 98,500 | |
| Selling | | 68,500 | |
| Administrative | | 398,000 | |
| Total fixed costs | $ | 565,000 | |
| Selling price per unit | $ | 115 | |
| Expected sales (units) | | 58,500 | |
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Required:
1. If the costs and sales price remain the same, what is theprojected operating profit for the coming year?
2. What is the breakeven point in units for the coming year?
3. Jan has set the sales target for 61,800 ice cream makers,which she thinks she can achieve by an additional fixed sellingexpense of $259,900 for advertising. All other costs remain as perthe data in the above table. What will be the operating profit ifthe additional $259,900 is spent on advertising and sales rise to61,800 units?
4-a. What will be the new breakeven point if the additional$259,900 is spent on advertising?
4-b. Prepare a contribution income statement at the newbreakeven point.
4-c. What is the percentage change in both fixed costs and inthe breakeven point?
5. If the additional $259,900 is spent for advertising in thenext year, what is the sales level (in units) needed to equal thecurrent year’s operating profit at 58,500 units?
