P2039 CVP analysis; advertising decisions; spare capacity: manufacturer LO 20.9 Mammoth Manufacturing Ltd manufactures two models of ballpoint pens, the classic and the economy. Both products have proved to be popular in government schools. in the past year, the following data apply to these two products. For unit Classic Economy Selling price $4.00 $3.00 Variable manufacturing cost 2.00 1.50 Fixed manufacturing cost* 0.75 0.20 Variable selling cost 1.00 1.00 ' Fixed manufacturing cost Is applied at a rate of $1.00 per machine hour. The sales manager has had a $160000 increase in her budget allotment for advertising, and she wants to apply the money to the most protable product. She is hoping to open up new markets in the private school sector. Customers do not consider the two products to be substitutes for each other. (Ignore income taxes.) Required: 1. Suppose the sales manager decides to spend the entire $160000 on advertising the classic model. What is the minimum increase needed in sales units of the classic model to ensure that the total prot from the sales of the classic does not change? 2. Suppose the sales manager decides to spend the entire $160000 on advertising the economy model. What is the minimum increase needed in sales units of the economy model to ensure that the total prot from the sales of the economy does not change? 3. Suppose Mammoth has only 100000 machine hours of spare capacity available for the production of both products and it is possible that the increased demand for each of the two products created by the additional advertising may exceed production capacity. Given that the company wishes to maximise its protability, which product should be advertised? What is the estimated increase in contribution margin earned? 4. Do the calculations that you have performed in requirements 1 to 3 of this problem provide sufcient information for the sales manager to allow her to make decisions about how the increased advertising budget allocation should be spent? If not, provide some examples of other information that may be needed