Question
Required information [The following information applies to the questions displayed below.] Horton Manufacturing Inc. (HMI) is a large-sized footwear company in the world. They
Required information [The following information applies to the questions displayed below.] Horton Manufacturing Inc. (HMI) is a large-sized footwear company in the world. They manufacture a variety of footwear and apparel. Due to the COVID-19 outbreak at one of its locations in the USA, HMI has been experiencing some financial losses on the production of its popular footwear line. The table here shows the financials on HMI's operations for 2021: Sales (16,000 units @ $84) Variable costs (16,000 @ $63) Contribution margin Fixed costs Operating profit (loss) $ 1,344,000 1,008,000 $ 336,000 369,600 $ (33,600) Required: 1. What would be HMI's breakeven point in both units and dollars. Additionally, calculate the contribution margin ratio. 2. To generate a pretax profit of $30,000, what would be the required sales, in units and in dollars? 3. To generate an after-tax profit of $30,000, what would be the required sales volume, in both units and dollars? Assume an income tax rate of 40%. 4. To double check your calculations in requirement 3, prepare a contribution income statement. 5. The manager of HMI believes that a $60,000 increase in advertising would result in approximately a $200,000 increase in annual sales. Assume the the manager is right. What will be the effect on the company's operating profit or loss? 6. Refer to the original data. Assume the vice president in charge of sales feels that a 10% reduction in price in combination with a $56,000 increase in advertising will cause unit sales to increases by 25%. What effect would this strategy have on operating profit (loss)?
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