Please help solve.

Luke Corporation produces a variety of products, each within their own division. Last year, the managers at Luke developed and began marketing a new chewing gum, Bubbs, to sell in vending machines. The product, which sells for $5.50 per case, has not had the market success that managers expected, and the company is considering dropping Bubbs.

The product-line income statement for the last month follows:

Revenue				$	1,388,750
Costs
Production costs				$	(1,255,451)
Product-line margin				$	133,299
Allowance for tax (20% tax rate)					(26,659.80)
Product-line profit (loss)				$	106,639.20

Roy O. Andre, the product manager for Bubbs, is concerned about whether the product will be dropped by the company and has employed you as a financial consultant to help with some analysis. In addition to the information given, Mr. Andre provides you with the following data on production costs for Bubbs for the past 12 months:

Month	Cases	Production Costs
1	220,500	$1,155,250
2	219,900	1,174,265
3	216,900	1,172,918
4	234,300	1,191,523
5	238,100	1,195,827
6	239,400	1,216,673
7	222,200	1,198,200
8	249,200	1,215,210
9	244,100	1,233,226
10	254,600	1,250,377
11	249,500	1,249,100
12	252,500	1,255,451

Assume that the relevant range of production is between 150,000 and 280,000 cases.

Based on the product line income statement for the most recent month:

• What is the margin of safety in terms of sales dollars?
• What is the margin of safety in terms of cases?

What is the maximum after-tax profit that Luke could be expected to earn without having to increase fixed costs (i.e., without going beyond the relevant range)?

Suppose Luke is considering a new requirement that all products have to earn an after-tax profit equal to 7 percent of total sales per month or they will be dropped.

• How many cases of Bubbs does Mr. Andre need to sell in a month to avoid seeing Bubbs dropped? (round the number of cases to the nearest whole number).
• What is the expected after-tax profit associated with this level of production?
• Use Solver in Excel to answer this problem. Not using Solver will lose you points.