Heidi: "Allen, competition has become quite intense in our industry. I have two suggestions to help improve sales. First, we need to increase out advertising budget. We have a good reputation, and I think we need to capitalize on it. I suggest that we emphasize our expertise in crating electronic equipment and other sensitive instruments. Our losses in this area are minuscule. We have a much better record than any of our competitors, and we need to let customers and potential customers know about the quality of our services." Allen: "That sounds good. How much more do you need for advertising, and what kind of increase in sales would you predict?" Heidi: "To do it right, I would need to double our current advertising budget. I would guess that sales would increase by 20 percent. I also have another suggestion. I think we should look at the international goods and freight-moving market. Many firms ship goods internationally, and I believe that they would switch to us if we entered that market. My preliminary analysis reveals that we could pick up $500,000 of sales during the first year. Allen: "Both suggestions seem to offer some potential for improving our profitability. Gaetan, would you gather the data needed to estimate the effect of each of these two alternatives on our profits?" Gaetan: "Sure. I have a suggestion also -1 plan to install a cost accounting system. At this point, we have no real idea how much each of our services is costing. I believe that there is some hope of reducing costs without affecting the quality of our services." Allen: "I'm all for reducing costs where possible. However, keep in mind that I don't want to lay off any employees yet. I like the idea of providing security to our employees. I would rather see everyone take a pay cut before we reduce our workforce. So far, we have been able to keep everyone despite the drop in our sales. I think it's a good policy. If these two ideas of Heidi's work out, no new hires may be necessary, and we have trained, loyal employees ready for the new business." REQUIRED: 1. Classify all expenses in the 2012 income statement as either variable or fixed. Assume that each expense is strictly variable or strictly fixed with respect to sales revenue. Once the classification is completed, prepare a variable-costing income statement. 2. Using the information obtained in Requirement 1, compute the revenue that Reinert Moving and Storage needs to generate to break even. Now compute the revenue that is needed to earn operating income equal to 12% of sales revenue. 3. What is the maximum amount that Reinert can spend on additional advertising assuming that profits remain unchanged for 2013 and sales will increase by 20%, as predicted by Heidi? Suppose that Heidi spends the amount she requested and sales increase by 20%; what will be the change in profits? Should Heidi's suggestion be adopted