Question

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 De Janey, 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: $ 16.00 19.00 8.00 $ 43.00 Variable costs per ice cream maker Direct labor Direct materials Variable overhead Total variable costs Fixed costs Manufacturing Selling Administrative Total fixed costs Selling price per unit Expected sales (units) $ 130, 500 46,000 550,000 $ 726,500 $ 80 57,500 Required: 1. If the costs and sales price remain the same, what is the projected 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 62,100 ice cream makers, which she thinks she can achieve by an additional fixed selling expense of $247,010 for advertising. All other costs remain as per the data in the above table. What will be the operating profit if the additional $247,010 is spent on advertising and sales rise to 62,100 units? 4-a. What will be the new breakeven point if the additional $247,010 is spent on advertising? 4-b. Prepare a contribution income statement at the new breakeven point. 4-c. What is the percentage change in both fixed costs and in the breakeven point? 5. If the additional $247,010 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 57,500 units?

Answer 1

fox B2 D E F G 1 $37 contribution margin per unit 1 sales units 57,500 total contribution margin $2,127,500 4 $726,500 $1,401,000 fixed costs 5 projected operating profit 6 7 $726,500 fixed costs 8 2. $37 contribution margin per unit breakeven point 10 19,636 units 11 contribution margin per unit $37 12 3 sales units 13 62,100 total contribution margin $2,297,700 $973,510 $1,324,190 14 fixed costs 15 projected operating profit 16 17 $973,510 $37 fixed costs 18 4a contribution margin per unit 19 new breakeven point 26,312 20 units 21 st Ln LO co

fox 4b C22 A B E F G 21 CONNELLY,INC 22 4b contribution income statement 23 sales revenue $2,104,960 $1,131,416 24 variable costs contribution margin fixed costs original amount incremental amount 25 $973,544 26 27 $726,500 $247,010 28 29 total fixed costs $973,510 $34 30 31. net income 32 34.00% 33 4c percentage change in fixed cost 34.00% 34 percentage change in breakeven point 35 required operating profit $1,401,000 $973,510 36 5 total fixed costs 37 required contribution margin $2,374,510 $37 38 contribution margin per unit 39 sales level 64,176 40 units 41 X

for formulas and calculations, refer to the image below -

fox X B2 1 В с D E F G 1 contribution margin per unit80-43 2 sales units 57500 total contribution margin =E2*E3 4 726500 fixed costs 5 projected operating profit 6 E4-E5 7 2. fixed costs -E5 /contribution margin per unit E2 =ROUNDUP (E8/E9,0) breakeven point 10 units 11 contribution margin per unit80-43 12 3 sales units 62100 13 -E12*E13 total contribution margin 14 - 726500+247010 fixed costs 15 projected operating profit -E14-E15 16 17 E15 fixed costs 18 4a contribution margin per unit E2 19 =ROUNDUP(E18/E19,0) new breakeven point 20 units 21 .. st LO LO

fox 4b C22 C E G 21 CONNELLY,INC 4b 22 contribution income statement 23 sales revenue -E20*80 24 variable costs contribution margin fixed costs original amount incremental amount -E20 43 25 EF24-F25 26 27 -E5 28 247010 29 total fixed costs 30 EE28+E29 =F26-F30 31. net income 32 E18-E8)/E8 (E20-E10)/E10 33 4c percentage change in fixed cost percentage change in breakeven point 34 35 required operating profit E6 36 5 -E18 total fixed costs 37 + required contribution margin E36+E37 contribution margin per unit E2 38 39 =ROUNDUP(E38/E39,0) sales level 40 units 41 . n

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