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: $ eBook 17.00 20.50 8.50 46.00 $ 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) $ 108,500 63,000 450,000 $621,500 $ 85 36,000 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 40,800 ice cream makers, which she thinks she can achieve by an additional fixed selling expense of $248,600 for advertising. All other costs remain as per the data in the above table. What will be the operating profit if the additional $248,600 is spent on advertising and sales rise to 40,800 units? 4-a. What will be the new breakeven point if the additional $248,600 is spent on advertising?

Answer 1

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Connelly Inc.
Answer 1
Contribution margin income statement
Particulars	Per Unit	Total	Note
Units	36,000.00		A
Sell Price	85.00	3,060,000.00	B
Less: Total Variable costs	46.00	1,656,000.00	C
Contribution margin	39.00	1,404,000.00	D=B-C
Less: Total Fixed costs		621,500.00	E
Operating Profit		782,500.00	F=D-E
Answer 2
Total Fixed costs		621,500.00	See E
Contribution margin		39.00	See D
Breakeven units		15,935.90	G=E/D
Answer 3
Contribution margin income statement
Particulars	Per Unit	Total
Units	40,800.00
Sell Price	85.00	3,468,000.00	See B
Less: Total Variable costs	46.00	1,876,800.00	See C
Contribution margin	39.00	1,591,200.00	H
Less: Total Fixed costs		621,500.00	See E
Less: Advertising Expenses		248,600.00	I
Operating Profit		721,100.00	J=H-E-I
Answer 4
Fixed costs		621,500.00	See E
Advertising Expenses		248,600.00	See I
Total Fixed costs		870,100.00	K=E+I
Contribution margin		39.00	See D
Breakeven units		22,310.26	L=K/D