eztomheducationcomhmtpx Eagle Company makes the MusicFinder

ezto.mheducation.com/hm.tpx Eagle Company makes the MusicFinder, a sophisticated satellite radio. Eagle has experienced a steady growth in sales for 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 Variable costs: Direct labor (per unit) Direct materials (per unit) Variable overhead (per unit) 81 38 12 131 Total variable costs (per unit) Fixed costs (annual): Manufacturing Selling Administrative s 386,000 284,000 792,000 Total fixed costs (annual) $ 1,462,000 Selling price (per unit) Expected sales revenues, year 1 (28,000 units) 402 $11,256,000 Eagle has an income tax rate of 35 percent Ms. Luray has set the sales target for year 2 at a level of $13,266,000 (or 33,000 radios). 8:03 P A A61772 ype here to search

Solution

Req a: Income Statement Sales revenue (28000*402) 11256000 Less: Variable cost Material (28000*38) 1064000 Labour (28000*81) 2268000 Variable OH (28000*12) 336000 Contribution margin 7588000 Less: fixed cost Manufacturing 386000 selling 284000 Admin 792000 Net Income 6126000 Less: Tax @ 35% 2144100 Net income after tax 3981900 Req b: Total fixed cost: 1462000 Selling price: 402 Variable cost: 131 Contribution margin per unit: 402-131 =271 Break even point in units: Fixed cost /CM per unit 1462000 /271 = 5395 units Req c: Income Statement Sales revenue (33000*402) 13266000 Less: Variable cost Material (33000*38) 1254000 Labour (33000*81) 2673000 Variable OH (33000*12) 396000 Contribution margin 8943000 Less: fixed cost Manufacturing 386000 selling 284000 Admin 792000 Advertising 290000 Net Income 7191000 Less: Tax @ 35% 2516850 Net income after tax 4674150 Req d: Total fixed cost: 1752000 CM ratio: 271 / 402 *100 = 67.41% Break even in $: Fixed cost / CM ratio 1752000 /67.415 = $ 2599021 Req e: Desired profits: 6126000 (before tax) Desired contribution: 6126000+ 1752000 = $ 7878,000 Required sales in 4: Desired contribution / CM ratio 7878,000 /67.41% = $ 11686,693 Req f: Contribution earned at 33000 units: 8943000 Less: Before tax desired profits 1173846 (763000/65%) Fixed cost contribution 7769154 Less: Existing fixed cost Manufacturing 386000 Sselling 284000 Admin 792000 Remaining Fixed cost for advertisement 6307154 Maximum amount which can be spend on advertisement: $ 6307154