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Profit Planning Connelly Inc

Accounting

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Profit Planning 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:

 

Variable costs per ice cream maker

Direct labor $ 21.00

Direct materials 25.50

Variable overhead 10.50

Total variable costs $ 57.00

 

Fixed costs

Manufacturing $ 86,000

Selling 50,000

Administrative 412,000

Total fixed costs $548,000

Selling price per unit $ 105

Expected sales (units) 42,000

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? (Round your answer up to the nearest whole

number.)

3. Jan has set the sales target for 46,100 ice cream makers, which she thinks she can achieve by an additional fixed selling expense of $235,640 for advertising. All other costs remain as per the data in the

above table. What will be the operating profit if the additional $235,640 is spent on advertising and

sales rise to 46,100units?

4. What will be the new breakeven point if the additional $235,640 is spent on advertising? (Prepare a contribution income statement to support your answer.) What is the percentage change in both fixed costs

and in the breakeven point? What general point is illustrated by this comparison?

 

 

5. If the additional $235,640 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 42,000 units?

 

Jan has set the sales target for 46,100 ice cream makers, which she thinks she can achieve by an additional fixed selling expense of $235,640 for advertising. All other costs remain as per the data in the above table. What will be the operating profit if the additional $235,640 is spent on advertising and sales rise to 46,100 units?