Michael & Company, maker of quality handmade pipes, has experienced a steady growth in sales for the past five years. However, increased competition has led Michael, the president, to believe that an aggressive advertising campaign will be necessary next year to maintain the companys present growth.

To prepare for next years advertising campaign, the companys accountant has prepared and presented the president with the following data for this year (year 1):

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

Michael has set the sales target for year 2 at the level of $550,000 (or 22,000 pipes).

Required:

a. What is the projected after-tax operating profit for year 1?

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

c. Michael believes that an additional expense of $11,250 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 $11,250 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?