Question

Exercise 9-21 Breakeven Planning; Profit Planning (LO 9-2, 9-3] 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 DeJaney, 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: 17.00 20.50 8.50 46.ee $ 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,See 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? 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 $248,600 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 36,000 units? < Prev 5 of 12 Next > 27 OM Otv . ? W P x

Answer 1

1. Determination of the Projected Operating Profit: $ $ $ $ Particulars Selling Price per Unit Less : Variable Costs per Unit Contribution per 85 (46) Unit 39 No. of Units 36,000 Contribution in Dollars (36,000 Units @$ 39 p.u) $1,404,000 Less: Fixed Costs - Manufacturing - Selling $ (108,500) $ (63,000) (450,000) $ 782,500 - Administrative Net Profit (Contribution - Fixed Costs) 2. Determination of the Break-Even Point Particulars $ $ 621,500 $ Fixed Costs Contribution per Unit 39 Break-Even Point (In Units): Formula Fixed Costs/ Contribution per Unit 15,936 Units

3. Determination of the Operating Profit @ 40,800 Units and additional fixed selling expenses of $ 248,600 Particulars $ $ $ Selling Price per Unit Less : Variable Costs per Unit Contribution per Unit 85 (46) 39 No. of Units 40,800 Contribution in Dollars (40,800 Units @$ 39 p.u) $1,591,200 Less : Fixed Costs - Manufacturing - Selling $ (108,500) $ (311,600) (450,000) $ 721,100 - Administrative Net Profit (Contribution Fixed Costs) The Operating Profit will be $ 721,100 when the sales rise to 40,800 units and additional amount of $ 248,600 is incurred. 4-a. Determination of the New Break-Even Point $ $ 870,100 Particulars Fixed Costs Contribution per Unit 39 Break-Even Point (In Units): Formula Fixed Costs / Contribution per Unit 22,310 Units