Mercy Company has for the coming year, budgeted sales of 1,500,000 with contribution margin of 60% and fixed costs of 450,000. The company's only one product line sells for 50.

The company is subject to 40% tax bracket.

REQUIRED:

a A plan includes an increase in advertising cost of 120,000. What is the minimum increase in peso sales to compensate for the increase in advertising cost?

b The operations manager believes that the variable cost will increase to 22 per unit. The sales manager believes the selling price can be increased. What is the new selling price that will give the same contribution margin ratio of 60%?