Question 1 (20 marks) Watson Company makes ice creams, Cherry, Mint Chocolate, and Vanilla. The company's tax rate is 40%. The following cost are expected for 2020: Per quarter Cherry Mint Chocolate Vanilla Variable cost Direct material $10 $12 $13 Direct labor SIS $15 SIS Production overhead S3 $S $7 Selling expense $4 $4.5 $5 Administration expense $3 $3.5 $4 Selling price S50 per quart S65 per quart S60 per quart Sales mix 5,000 quarts 6,000 quarts 4,000 quarts I Fixed overhead, S60,000; fixed selling expense, $40,000; Fixed administrative expense, $20,000 Required: (4 marks each) a. List a pro forma income statement for 2020 b. Compute the breakeven point in dollar. How many quarts of each favor of ice creams are expected to be sold at the break-even point? c. If the company wants to make pre-tax profit of $400,000; how many quarts of each favor of ice creams should be sold? What amount of the total revenue would be? d. If the company wants to make after-tax profit of $400,000; determine the revenue of each favor of ice creams and the total revenue of the company. e. Use the answer of part a, to compute the margin of safety in terms of dollars and percentage 1429 The Merton Corporation manufactures and sells jeans. Assuming no changes in beginning and ending inventory, the production and sales data for 2019 are as follows: Current assets $400,000 Long-term assets 600,000 Total assets $1,000,000 Market value of invested capital $1,200,000 Production output of 2019 500,000 Pair of jeans Targeted net income $300,000 Total fixed costs $600,000 Per year Total variable cost $14 Per pair of jeans Income tax rate 40% Required: a. Compute the minimum selling price per pair of jeans necessary to achieve the targeted net income. (4 marks) b. Using the selling price from section a above, compute the ROI with separate the ROI (based on operating income) into its two components using the DuPont method. (4 marks) c. Compute the Residual Income (RI) of the corporation for year of 2019, using the selling price from section a above. Merton uses a required rate of return of 14% on total assets when computing Residual Income. (4 marks) d. Assume that the cost of capital is 14%, compute the Economic Value Added (EVA) for Merton using the operating income from section a above. (4 marks) e. Assume you are the manager of Merton and receive 3% of the RI of Merton as your bonus. Compute your bonus. What would you prefer, a flat bonus of $12,000 or the current bonus scheme based on RI? Explain. (4 marks)