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Vince Limited, maker of high quality hand phone cases, has experienced steady growth over the last 5 years. However, increased competition has led Joe, the
Vince Limited, maker of high quality hand phone cases, has experienced steady growth over the last 5 years. However, increased competition has led Joe, the CEO, to believe that an aggressive campaign is needed next year to maintain the entity's present growth. The financial year begins in January and ends in December. The accountant has presented Joe with the following data for the current year, for use in preparing next year's advertising campaign. Cost Schedules Variable costs Direct labour per case Direct materials Variable overhead Variable cost per case Fixed costs Manufacturing Selling Administrative Per Unit ($) 12.00 6.00 3.00 21.00 $50,000 60,000 58,000 $168,000 $35.00 20,000 units Selling price per case Sales, Current year (2 marks) (3 marks) (2 marks) (2 marks) Required (show all workings): (a) What is the projected operating profit for the current year? (b) What is the break-even point in dollars and units for the current year? (c) What is the margin of safety in dollars and units for the current year? (d) How many units would have to be sold in current year to earn a target profit of $126,000? (e) Joe believes that to attain the sales target for next year additional selling expenses of $24,000 for advertising will be required, with all other costs remaining constant. What will be the break-even point in dollar sales if the entity spends the additional $24,000 advertising expenses? (f) If the entity spends the additional $24,000 for advertising next year, what is the required sales level in dollars to attain $78,400 operating profit after tax with the tax rate 30%
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