Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Problem 3-62 (Algo) Extensions of the CVP Analysis-Taxes (LO 3-4) Eagle Company makes the MusicFinder, a sophisticated satellite radio. Eagle has experienced a steady

image text in transcribed

Problem 3-62 (Algo) Extensions of the CVP Analysis-Taxes (LO 3-4) Eagle Company makes the MusicFinder, a sophisticated satellite radio. Eagle has experienced a steady growth in sales for the past five years. However, Ms. Luray, Eagle's CEO, believes that to maintain the company's present growth will require an aggressive advertising campaign next year. To prepare for the campaign, the company's accountant, Mr. Bednarik, has prepared and presented to Ms. Luray the following data for the current year, year 1: Variable costs: Direct labor (per unit) Direct materials (per unit) Variable overhead (per unit) 86 42 18 Total variable costs (per unit) $ 146 Fixed costs (annual): Manufacturing Selling Administrative Total fixed costs (annual) Selling price (per unit) $ 384,000 287,000 793,000 $ 1,464,000 402 Expected sales revenues, year 1 (25,000 units) $ 10,050,000 Eagle has an income tax rate of 35 percent. Ms. Luray has set the sales target for year 2 at a level of $12,060,000 (or 30,000 radios). Required: a. What is the projected after-tax operating profit for year 1? b. What is the break-even point in units for year 1? c. Ms. Luray believes that to attain the sales target (30,000 radios) will require additional selling expenses of $288,000 for advertising in year 2, with all other costs remaining constant. What will be the after-tax operating profit for year 2 if the firm spends the additional $288,000? d. What will be the break-even point in sales dollars for year 2 if the firm spends the additional $288,000 for advertising? e. If the firm spends the additional $288,000 for advertising in year 2, what is the sales level in dollars required to equal the year 1 after-tax operating profit? f. At a sales level of 30,000 units, what is the maximum amount the firm can spend on advertising to earn an after-tax operating profit of $764,000?

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Managerial Accounting

Authors: Ray H. Garrison, Eric W. Noreen, Peter C. Brewer

13th Edition

978-0073379616, 73379611, 978-0697789938

More Books

Students also viewed these Accounting questions