Connelly, Inc., a manufacturer of quality electric ice cream makers, has experie

Question

Connelly, Inc., a manufacturer of quality electric ice cream makers, has experienced a steady growth in sales over the past few years. Since 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 Direct materials Variable overhead $ 23.00 27.50 11.50 Total variable costs $ 62.00 Fixed costs Manufacturing Selling Administrative $98,500 68,500 398,000 Total fixed costs $565,000 Selling price per unit Expected sales (units) $ 115.00 58,500 Required 1. If the costs and sales price remain the same, what is the projected operating profit for the coming year? Projected operating profit 2. What is the breakeven point in units for the coming year? (Round your answer up to the nearest whole number). Breakeven point units 3. Jan has set the sales target for 61,800 ice cream makers, which she thinks she can achieve by an additional fixed selling expense of $259,900 for advertising. All other costs remain as per the data in the above table. What will be the operating profit if the additional $259,900 is spent on advertising and sales rise to 61,800 units? Operating profit

Explanation / Answer

1) Contribution   58500*(115-62)= 3100500 less total fixed costs 565,000 projected operating profit 2,535,500 2) Break even point in units = total fixed cost/contribution per unit 565,000/53 10660 units 3) increase in contribution (61800-58500)*53= 174900 less increase in advertising -259,900 Decrease in profit -85000 operating profit 2,535,500-85000 2,450,500 answer 4-a) new break even point = (565000+259900)/53 15564 4-b) Contribution income statement Sales (15564*115) 1789877 less variable cost 964977.4 contribution margin 824900 less:Fixed cost original amount 565,000 incremental amount 259,900 total fixed cost 824,900 net operating income 0 4-c) percentage change In fixed costs (259,900/565000)= 46.00% percentage change in BEP (15564-10660)/10660= 46.00% 5) 53x =565000+259900+2535500 53x = (565000+259900+2535500) x 63404

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