MULTIPLE-PRODUCT ANALYSIS, CHANGES IN SALES MIX, SALES TO EARN TARGET OPERATING INCOME Gosnell Company produces two products: squares and circles. The projected income for the coming year, segmented by product line, follows:

Squares Circles Total Sales $300,000 $2,500,000 $2,800,000 Less: Variable expenses 100,000 500,000 600,000 Contribution margin $200,000 $2,000,000 $2,200,000 Less: Direct fixed expenses 28,000 1,500,000 1,528,000 Product margin $172,000 $ 500,000 $ 672,000 Less: Common fixed expenses 100,000 Operating income $ 572,000 The selling prices are $30 for squares and $50 for circles.

Required:
. Compute the number of units of each product that must be sold for Gosnell Company to break even.
. Assume that the marketing manager changes the sales mix of the two products so that the ratio is three squares to five circles. Repeat Requirement 1.
. Refer to the original data. Suppose that Gosnell can increase the sales of squares with increased advertising. The extra advertising would cost an additional $245,000, and some of the potential purchasers of circles would switch to squares. In total, sales of squares would increase by 25,000 units, and sales of circles would decrease by 5,000 units. Would Gosnell be better off with this strategy?
Problem