Breakeven Planning; Profit Planning Connelly Inc., a manufacturer of quality electric ice creammakers, has experienced a steady growth in sales over the past few years. Because her business hasgrown, Jan DeJaney, the president, believes she needs an aggressive advertising campaign next yearto maintain the company’s growth. To prepare for the growth, the accountant prepared the followingdata for the current year:Variable costs per ice cream makerDirect labor $ 13.50Direct materials 14.50Variable overhead 6.00Total variable costs $ 34.00Fixed costsManufacturing $ 82,500Selling 42,000Administrative 356,000Total fixed costs $480,500Selling price per unit $ 67.00Expected sales (units) 30,000Required1. 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 wholenumber.)3. Jan has set the sales target for 35,000 ice cream makers, which she thinks she can achieve by an additional fixed selling expense of $200,000 for advertising. All other costs remain as per the data in theabove table. What will be the operating profit if the additional $200,000 is spent on advertising andsales rise to 35,000 units?4. What will be the new breakeven point if the additional $200,000 is spent on advertising? (Prepare a contribution income statement to support your answer.) What is the percentage change in both fixed costsand in the breakeven point? What general point is illustrated by this comparison?5. If the additional $200,000 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 30,000 units?
Breakeven Planning; 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 $ 13.50
Direct materials 14.50
Variable overhead 6.00
Total variable costs $ 34.00
Fixed costs
Manufacturing $ 82,500
Selling 42,000
Administrative 356,000
Total fixed costs $480,500
Selling price per unit $ 67.00
Expected sales (units) 30,000
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 35,000 ice cream makers, which she thinks she can achieve by an additional fixed selling expense of $200,000 for advertising. All other costs remain as per the data in the
above table. What will be the operating profit if the additional $200,000 is spent on advertising and
sales rise to 35,000 units?
4. What will be the new breakeven point if the additional $200,000 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 $200,000 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 30,000 units?
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