You are the plant accountant for a company that makes a popular brand of basketball shoes. Currently, your company sells 1,000 pairs of shoes each month for $100 apiece. The variable costs are 40% of sales, and the fixed costs are $35,000/month. The company's advertising director is asking for an increase in her marketing budget of $1,500 per month. She plans to enhance her marketing campaign in a targeted area of the West Coast. She estimates that the additional advertising will result in a 50% increase in demand. For this situation, the additional advertising costs are considered a fixed cost. What is the impact of this request on the company's operating income? On the other hand, the production manager believes that this increase in sales could put pressure on the production line. He estimates that there will need to be a $2.00 increase in labor costs per unit.

Sales (total number of shoes sold in a month x selling price each shoe) 100,000 Variable costs (40%) 40,000 Contribution margin (Sales - Variable costs) 60,000 Fixed costs - given 35,000 Operating income (Contribution margin - fixed cost) 25,000 Break-even point (fixed costs / variable costs per unit) = 1.7 Respond to the following: How did you calculate the original operating income and break-even point before changes? Detail how you calculated contribution margin, operating income, and break-even point. 2) Revised Break-even after extra $1,500 of advertising Sales New Sales (new sales volume x selling price of each shoe) ((50% x 1,000) + 1,000) x $100 Variable costs (original 40% + $2/pair) (Selling price x new variable cost/pair) Contribution margin (Sales - Variable Costs) Fixed costs (original fixed costs + additional marketing cost) (35,000 + 1,500) 36,500 Operating income (Contribution margin - fixed cost) Break-even point (fixed costs / variable costs per unit)

Respond to the following: What is the new break-even point after including the effects of the increased advertising and higher variable costs? Compare the two break-even results, and make a recommendation on whether the company should change or not. Analysis Consider the following and make comments at least one paragraph Using the projected monthly income figure calculated above, how many units would the company need to sell to meet the initial monthly operating income figure? What is the break-even sales volume needed? Explain the benefits and limitations of break-even analysis. Reference to the textbook or other scholarly research may be used to support these findings. Discuss how organizations can use "What if?" analyses to evaluate alternatives like the Advertising Director's proposal (an example of what if analysis is part 2 of your calculations. The advertising director proposed a "what if" scenario with an increase in marketing budget and a correlating increase in demand. Given the results of your calculations above compare the pros and cons or each of the two break-even results Make a recommendation on whether the company should change or not.

Conclusion summarize the results of your analysis and the overall uses and limitations of the breakeven calculations that you performed.

References please