`Martin Footwear Co. produces high-quality shoes. To prepare for next year's marketing campaign, the company's controller has prepared the following information for the current year, 2012:
Variable costs (per pair of shoes)
Direct materials ............................................................................ $ 40.00
Direct manufacturing labour ................................................................ 19.00
Variable overhead (manufacturing, marketing, distribution, customer
service, and administration) ............................................................... 21.00
Total variable costs ....................................................................... $ 80.00
Fixed costs
Manufacturing ........................................................................ $2,750,000
Marketing, distribution, and customer service ....................................... 500,000
Administrative ............................................................................ 750,000
Total fixed costs ...................................................................... $4,000,000
Selling price per pair of shoes ............................................................. $ 180
Expected revenues, 2012 (50,000 units) .......................................... $9,000,000
Income tax rate ................................................................................ 40%
Instructions
(a) Calculate the projected operating income before tax for 2012.
(b) Calculate the break-even point in units for 2012.
(c) The company controller has set the revenue target for 2013 at $9.9 million (or 55,000 pairs). He believes an additional marketing cost of $400,000 for advertising in 2013, with all other costs remaining constant, will be necessary to attain the revenue target. Calculate the operating income for 2013 if the additional $400,000 is spent and the revenue target is met?