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Assignment no. 3. Exercise 1: B.T. Hernandez Company, maker of high-quality flashlights, has experienced steady growth over the last 6 years. However, increased competition has
Assignment no. 3. Exercise 1: B.T. Hernandez Company, maker of high-quality flashlights, has experienced steady growth over the last 6 years. However, increased competition has led Mr. Hernandez, the president, to believe that an aggressive campaign is needed next year to maintain the company's present growth. The company's accountant has presented Mr. Hernandez with the following data for the current year, 2011, for use in preparing next year's advertising campaign. (50 points) COST SCHEDULES Variable costs Direct labor per ashlight $ 8.00 Direct materials 4.00 Variable overhead 3.00 Variable cost per flashlight $15.00 SM510 Business Finance for Sales Managers Assignment no. 3. Fixed costs Manufacturing $ 25,000 Selling 40,000 Administrative 70,000 Total fixed costs $135,000 Selling price per flashlight $25.00 Expected sales, 2011 (20,000 flashlights) $500,000, Mr. Hernandez has set the sales target for the year 2012 at a level of $550,000 (22,000 flashlights). Instructions (Ignore any income tax considerations. ) SM510 Business Finance for Sales ManagersAssignment no. 3. (a) What is the projected operating income for 2011? (b) What is the contribution margin per unit for 2011? (c) What is the breakeven point in units for 2012? (d) Mr. Hernandez believes that to attain the sales target in the year 2012, the company must incur an additional selling expense of $10,000 for advertising in 2012, with all other costs remaining constant. What will be the break-even point in sales dollars for 2012 if the company spends the additional $10,000? (e) If the company spends the additional $10,000 for advertising in 2012, what is the sales level in dollars required to equal 2011 operating income? SM510 Business Finance for Sales Managers
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