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Category > Accounting Posted 12 Aug 2017 My Price 13.00

Eagle Company

Eagle Company makes the MusicFinder, a sophisticated satellite radio. Eagle has experienced a steady growth in sales for the 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) $ 91
Direct materials (per unit)   38
Variable overhead (per unit)   19
 
Total variable costs (per unit) $ 148
 
Fixed costs (annual):    
Manufacturing $ 383,000
Selling   299,000
Administrative   781,000
 
Total fixed costs (annual) $ 1,463,000
 
Selling price (per unit)   409
Expected sales revenues, Year 1 (25,000 units) $ 10,225,000

 

Eagle has an income tax rate of 35 percent.

Ms. Luray has set the sales target for Year 2 at a level of $11,861,000 (or 29,000 radios).

 

Required:
 

What is the projected after-tax operating profit for Year 1?

 

What is the break-even point in units for Year 1?

 

Ms. Luray believes that to attain the sales target (29,000 radios) will require additional selling expenses of $284,000 for advertising in Year 2, with all other costs remaining constant. What will be the after-tax operating profit for Year 2 if the firm spends the additional $284,000?

 

Answers

Maurice Tutor
(5)
Status NEW Posted 12 Aug 2017 12:08 AM My Price 13.00

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