Problem 1 Bob's Burritos sells burritos for $11 each. The company is facing the following annual costs: Cost Direct Materials (per burrito) Direct Labor (per burrito) Annual Rent Annual Insurance Amount $4 $3 $16,000 $2,000 62 The company's tax rate is 30%, and expects to sell 8,000 burritos this year. A marketing firm has approached Bob with a proposal to spend $2,000 on an advertising campaign. The firm estimates that this will help Bob to sell an additional 1,000 burritos during the year. Bob is very conservative and wants to achieve a margin of safety of at least 35% to spend the additional money. Required: a) What is the annual breakeven point in burritos without the additional advertising? b) What is the margin of safety in dollars without the additional advertising? c) If Bob wants to achieve a target net income of $140,000, how many burritos must he sell to achieve this goal without the additional advertising? d) Should Bob spend the $2,000 on additional advertising? (16,000+ 2,000+ 2,000) 20,006 - 5,000

Problem 1 Bob's Burritos sells burritos for $11 each. The company is facing the following annual costs: The company's tax rate is 30%, and expects to sell 8,000 burritos this year. A marketing firm has approached Bob with a proposal to spend $2.000 on an advertising campaign. The firm estimates that this will help Bob to sell an additional 1,000 burritos during the year. Bob is very conservative and wants to achieve a margin of safety of at least 35% to spend the additional money. Required: a) What is the annual breakeven point in burritos without the additional advertising? b) What is the margin of safety in dollars without the additional advertising? c) If Bob wants to achieve a target net income of $140,000, how many burritos must he sell to achieve this goal without the additional advertising? d) Should Bob spend the $2,000 on additional advertising? (16,000+2,000+2,000) 20,000=5,000