B.T. Hernandez Company, maker of high-quality flashlights, has experienced steady growth over the last 6 years. However, increased competition has led Mr. Hernandez, the president, to believe that an aggressive campaign is needed next year to maintain the company”s present growth. The company”s accountant has presented Mr. Hernandez with the data on the next page for the current year, 2014, for use in preparing next year”s advertising campaign.
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what is the projected operating income for 2014 at the 20 000 expected sales level 608899
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Variable costs |
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Direct labor per flashlight |
$ 8.00 |
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Direct materials |
4.00 |
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Variable overhead |
3.00 |
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Variable cost per flashlight |
$15.00 |
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Fixed costs |
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Manufacturing |
$ 25,000 |
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Selling |
40,000 |
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Administrative |
70,000 |
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Total fixed costs |
$135,000 |
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Selling price per flashlight |
$25.00 |
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Expected sales, 2014 (20,000 flashlights) |
$500,000 |
Mr. Hernandez has set the sales target for the year 2015 at a level of $550,000 (22,000 flashlights).
Instructions
(a)What is the projected operating income for 2014 at the 20,000 expected sales level?
(b)What is the contribution margin per unit for 2014?
(c)What is the break-even point in units for 2014?
(d)Mr. Hernandez believes that to attain the sales target in the year 2015, the company must incur an additional selling expense of $10,000 for advertising in 2015, with all other costs remaining constant. What will be the break-even point in dollar sales for 2015 if the company spends the additional $10,000?
(e)If the company spends the additional $10,000 for advertising in 2015, what is the sales level in dollars required to equal 2014 operating income?
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