Profit Targets: R. A. Ro & Company: R. A. Ro & Company, maker of quality handmade pipes, has experienced a steady growth in sales for the past five years. However, increased competition has led Mr. Ro, the president, to believe that an aggressive advertising campaign will be necessary next year to maintain the company's present growth. To prepare for next year's advertising campaign, the company's accountant has prepared and presented Mr. Ro with the following data for this year (Year 1):

Mr. Ro has set the sales target for next year (Year 2) at a level of $550,000 (or 22.000 pipes).

Required:

a. What is the projected after-tax operating profit for this year (Year 1)?

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

c. Mr. Ro believes an additional selling expense of $1 1,250 for advertising in Year 2, with all other costs remaining constant, will be necessary to attain the sales target. What will be the after-tax net income for Year 2 if the additional $1 1 ,250 is spent?

d. What will be the break-even point in dollar sales for Year 2 if the additional $11,250 is spent for advertising?

e. If the additional $11,250 is spent for advertising in Year 2, what is the required sales level in dollars to equal Year 1 after-tax operating profit?

f. At a sales level of 22,000 units, what is the maximum amount that can be spent on advertising in Year 2 if an after-tax operating profit of $60,000 is desired?

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Cost Schedule Variable costs: Direct labor Direct materials Variable overhead Total variable costs Fixed costs: Manufacturing Selling $ 8.00 per pipe 3.25 per pipe 2.50 per pipe $13.75 per pipe $ 25,000 40,000 Administrative Total fixed costs Selling price per pipe Expected sales this year (Year 1) (20,000 units) Tax rate: 40% 70,000 $135,000 $25.00 $500,000