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Petra Puttie, a artist, started Finger Aerobics Company (FAC) a mass production sculpting business last year. Her first year's contribution format income statement looked like

Petra Puttie, a artist, started Finger Aerobics Company (FAC) a mass production sculpting business last year. Her first year's contribution format income statement looked like this: Sales $854,000 Less Variable Expenses $470,000 Contribution Margin $384,000 Less Fixed Expenses 288,000 Operating Profit 96,000 NOTE: If the data above is blank it means you haven't entered your student number on the Cover tab. The average price FAC charged for the sculptures was $500 per piece and FAC's income tax rate is 25%. Required: Please answer the following 5 questions using the data above. I have left space after each question for your to do your work. If you need more space you can insert a row. Please do not use column A as I would like to use it to record my marking. 1 What is FAC's break-even point in dollars? (3 marks) 2 What is FAC's margin of safety in units? (2 marks) 3 FAC's goal for year two is to earn an after tax profit of $144,000 NOTE: If there is no number in the box to the left it means you haven't entered your student number on the Cover tab. Assuming the cost behaviour is consistent with what was experienced in the first year, the average selling price is still $500 a piece and the tax rate remains the same what would be the total units sold need to be to achieve the goal? (2 marks) 4 FAC was contemplating an advertising campaign in year 2 that would cost them $45,000.00 They believed that the advertising would increase units sold from year 1 by 10.00% Should they do the advertising? Why? (3 marks) 5 If FAC increases sales in year 2 by 15% from year 1 sales, by what percentage should operating profit increase by? (assuming cost behaviour and average selling price stays the same)? Use operating leverage to help you with this answer? (2 marks)

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