Problem 9-39 (Algo) CVP Analysis; Profit Planning [LO 9-3, 9-5]

Horton Manufacturing Incorporated (HMI) is suffering from the effects of increased local and global competition for its main product, a lawn mower that is sold in discount stores throughout the United States. The following table shows the results of HMIs operations for 2019: Sales (22,000 units @ $84) $ 1,848,000 Variable costs (22,000 @ $63) 1,386,000 Contribution margin $ 462,000 Fixed costs 495,600 Operating profit (loss) $ (33,600) Part 1 (Algo) Required: 1. Compute HMIs breakeven point in both units and dollars. Also, compute the contribution margin ratio. 2. What would be the required sales, in units and in dollars, to generate a pretax profit of $30,000? 3. Assume an income tax rate of 40%. What would be the required sales volume, in both units and dollars, to generate an after-tax profit of $30,000? 4. Prepare a contribution income statement as a check for your calculations in requirement 3. 5. The manager believes that a $60,000 increase in advertising would result in approximately a $200,000 increase in annual sales. If the manager is right, what will be the effect on the companys operating profit or loss? 6. Refer to the original data. The vice president in charge of sales feels that a 10% reduction in price in combination with a $85,000 increase in advertising will cause unit sales to increases by 25%. What effect would this strategy have on operating profit (loss)? Prepare a contribution income statement as a check for your calculations in requirement 3. (Round final answers to nearest whole dollars.) Prepare a contribution income statement as a check for your calculations in requirement 3. (Round final answers to nearest whole dollars.) Horton Manufacturing Inc. Contribution Income Statement Sales $2,182,400 Variable costs Contribution margin $2,182,400 Fixed costs Pre-tax income $2,182,400 Less: Income tax Profit after tax $2,182,400 Refer to the original data. The vice president in charge of sales feels that a 10% reduction in price in combination with a $85,000 increase in advertising will cause unit sales to increases by 25%. What effect would this strategy have on operating profit (loss)? (Do not round intermediate calculations.) Operating profit will decrease by