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Problem 2 (9 marks) (18 minutes) The Bruggs & Strutton Company manufactures an engine for carpet cleaners called the "Snooper." Budgeted cost and revenue data for the coming month of the "Snooper" are given below, based on sales of 40,000 units. Sales (40,000 units) $1,600,000 Less: Cost of goods sold _1,120,000 Gross margin $ 480,000 Less: Operating expenses 100M Operating income _$ 380,000 Cost of goods sold consists of $800,000 of variable costs and $320,000 of fixed costs. Operating expenses consist of $40,000 of variable costs and $60,000 of fixed costs. Required: a. Calculate the break-even point in units. b. How many units must be sold to generate an operating income equal to 15% of sales? c. Using the degree of operating leverage, calculate the percentage increase in operating income that would result if sales were to increase by 25% over the budgeted amount. d. Management wants to increase sales and feels that this can be done by cutting the selling price by 10% and increasing the advertising budget by "' 7'";J;J' V' '""'\"\" *\"\"I\""'J \"\""\"\""\""\"' "\" \"'{J\"\" \"' '"'I\"' \"\""\"\" called the "Snooper." Budgeted cost and revenue data for the coming month of the "Snooper" are given below, based on sales of 40,000 units. Sales (40,000 units) $1,600,000 Less: Cost of goods sold _1,m, Gross margin $ 480,000 Less: Operating expenses 100% Operating income $&,M Cost of goods sold consists of $800,000 of variable costs and $320,000 of fixed costs. Operating expenses consist of $40,000 of variable costs and $60,000 of fixed costs. Required: a. Calculate the break-even point in units. b. How many units must be sold to generate an operating income equal to 15% of sales? c. Using the degree of operating leverage, calculate the percentage increase in operating income that would result if sales were to increase by 25% over the budgeted amount. d. Management wants to increase sales and feels that this can be done by cutting the selling price by 10% and increasing the advertising budget by $20,000 per month. Management believes that these actions will increase unit sales by 50%. Should these changes be made? Use incremental analysis