Respuesta :
Feather Friends, Inc., distributes a high-quality wooden birdhouse that sells for $80 per unit. Variable expenses are $40.00 per unit, fixed expenses total $200,000 per year. Its operating results for last year were as follows:
Sales $2,160,000
Variable expenses $1,080,000
Contribution margin $1,080,000
Fixed expenses $200,000
Net operating income $ 880,000
Answer:
$732,625
Explanation:
The contribution per unit is:
Contribution per unit = Selling price per unit - variable cost per unit - Sales commission per unit
Contribution per unit = $80 - $40 - $1.7 = $38.3 per unit
The increase in advertisement expense can be calculated under the new condition by the following formula:
New Sales ($) = (Fixed cost + Profit) * Sales Prices per unit / Contribution Per unit
By putting values we have:
$2,160,000 * 125% = (Fixed cost + $360,000)* $80 per unit / $38.3 per unit
$2,700,000 * $38.3 per unit / $80 per unit = Fixed Cost + $360,000
$1,292,625 - $360,000 = Fixed Cost
Fixed Cost = $932,625
This means that the maximum amount of increase in the advertisement expense would be $732,625 to earn a profit of $360,000
Answer:
The president must increase the advertising expense by $687, 700.
Explanation:
The president must increase the advertising expense by $687, 700.
If we were to compute the income statement for the year,
Sales would increase by 25%: $2, 280, 000 x 125% = $3, 600, 000
Variable expenses would increase by the increase in sales commission pf $1.70 per unit:
$1.70 x 19, 000 units = $32, 300
Total variable expense = $1, 440, 000 + $32, 300 = $1, 472, 300
[We arrived at 19, 000 by dividing the sales value of $2880, 000 by the selling price of $120
$2, 880, 000 / $120 = 19, 000 units.]
In order to determine by how much the advertising expense should increase by, we need to compute the income statement.
Sales $3, 600, 000
Less: Variable expenses -$1, 472, 300
Contribution margin $2, 127, 700
Fixed cost (given) $160, 000
Advertising increase x
Net operating income $1, 280, 000
To determine the value of the advertising expense, we need to work backwards. Subtract the net operating income value and the fixed cost value from the contribution margin.
Therefore,
$2, 127, 700 - $1, 280, 000 - $160, 000 = $687, 700
