Thomas Manufacturing Inc (TMI) is suffering from the effects of increased local and global competition for its main product, an office chair that is sold in discount stores throughout America. The following table shows the results of TMIs operations for the most recent year:

The income tax rate for TMI is 40%

Required: 1. Compute TMIs breakeven point in dollars 2. Compute the margin of safety % for TMI 3. What would be the required sales in dollars to generate an after tax profit of $ 30,000? 4. The manager believes that a 10% reduction in price in combination with s $ 40,000 increase in advertising would cause unit sales to increase by 25%. If the manager is correct, would you recommend the manager to go ahead with this change (Show the effect on the companys operating profit or loss) ?

Sales (12,500 units @ $ 84) Variable costs (12,500 @ $63) Contribution margin Fixed costs Operating profit (loss) $ 1,050,000 $ 787,500 $ 262,500 $ 296,100 ($ 33,600)