Question

Horton Manufacturing Inc. (HMI) is suffering from the effects of increased local and global competition for its main product, a lawn mower that is sold in discount stores throughout the United States. The following table shows the results of HMI's operations for 2019: Sales (18,000 units @ $84) Variable costs (18,000 @ $63) Contribution margin Fixed costs Operating profit (loss) $ 1,512,000 1,134,000 $ 378,000 411,600 $ (33,600) Part 1 Required: 1. Compute HMI's breakeven point in both units and dollars. Also, compute the contribution margin ratio. 2. What would be the required sales, in units and in dollars, to generate a pretax profit of $30,000? 3. Assume an income tax rate of 40%. What would be the required sales volume, in both units and dollars, to generate an after-tax profit of $30,000? 4. Prepare a contribution income statement as a check for your calculations in requirement 3. 5. The manager believes that a $60,000 increase in advertising would result in approximately a $200,000 increase in annual sales. If the manager is right, what will be the effect on the company's operating profit or loss? 6. Refer to the original data. The vice president in charge of sales feels that a 10% reduction in price in combination with a $66,000 increase in advertising will cause unit sales to increases by 25%. What effect would this strategy have on operating profit (loss)?

Answer 1

1) Break even unit = 411600/21 = 19600 Units

Break even sales = 19600*84 = $1646400

Contribution margin ratio = 21/84 = 25%

2) Required unit = (411600+30000)/21 = 21029 Units

Required sales = (411600+30000)/.25 = $1766400

3) Income before tax = 30000*100/60 = 50000

Required sales volume = (411600+50000)/21 = 21981 Units

Required sales = (411600+50000)/.25 = $1846400

4) Contribution margin income statement

Sales	1846400
Variable cost	1384800
Contribution margin	461600
Fixed cost	411600
Income before tax	50000
Income tax expense	20000
Net income	30000

Note : Please post whole question in the group of 4-4 sub parts as per HOMEWORKLIB RULES