Eagle Company makes the MusicFinder, a sophisticated satellite radio. Eagle has

Question

Eagle Company makes the MusicFinder, a sophisticated satellite radio. Eagle has experienced a steady growth in sales for the past five years. However, Ms. Luray, Eagle's CEO, believes that to maintain the company's present growth will require an aggressive advertising campaign next year. To prepare for the campaign, the company's accountant, Mr. Bednarik, has prepared and presented to Ms. Luray the following data for the current year, Year 1:

     Ms. Luray has set the sales target for Year 2 at a level of $11,861,000 (or 29,000 radios).

What is the projected after-tax operating profit for Year 1?

What is the break-even point in units for Year 1?

Ms. Luray believes that to attain the sales target (29,000 radios) will require additional selling expenses of $284,000 for advertising in Year 2, with all other costs remaining constant. What will be the after-tax operating profit for Year 2 if the firm spends the additional $284,000?

Eagle Company makes the MusicFinder, a sophisticated satellite radio. Eagle has experienced a steady growth in sales for the past five years. However, Ms. Luray, Eagle's CEO, believes that to maintain the company's present growth will require an aggressive advertising campaign next year. To prepare for the campaign, the company's accountant, Mr. Bednarik, has prepared and presented to Ms. Luray the following data for the current year, Year 1:

Explanation / Answer

a) profit before tax = 10225000 - 1463000 - 148(25000) = 5062000

after tax profit = 0.65* 5062000 = 3290300

b) let breaking point be x then

148*x + 1463000 = 409*x*0.65

x = 12414

c) profit before tax = 29000*409 - 1463000 - 284000 - 148(29000) = 5822000

after tax = 0.65*5822000 = 3784300

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