Connelly Incorporated, a manufacturer of quality electric ice cream makers, has experienced a steady growth in sales over the past few years. Because her business has grown, Jan DeJaney, the president, believes she needs an aggressive advertising campaign next year to maintain the company’s growth. To prepare for the growth, the accountant prepared the following data for the current year:   Variable costs per ice cream maker   Direct labor $ 13.50 Direct materials 14.50 Variable overhead 6.00 Total variable costs $ 34.00 Fixed costs   Manufacturing $ 82,500 Selling 42,000 Administrative 356,000 Total fixed costs $ 480,500 Selling price per unit $ 67.00 Expected sales (units) 30,000   a. What will be the new breakeven point if the additional $200,000 is spent on advertising? b. Prepare a contribution income statement at the new breakeven point. c. What is the percentage change in both fixed costs and in the breakeven point?

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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Connelly Incorporated, a manufacturer of quality electric ice cream makers, has experienced a steady growth in sales over the past few years. Because her business has grown, Jan DeJaney, the president, believes she needs an aggressive advertising campaign next year to maintain the company’s growth. To prepare for the growth, the accountant prepared the following data for the current year:

 

Variable costs per ice cream maker  
Direct labor $ 13.50
Direct materials 14.50
Variable overhead 6.00
Total variable costs $ 34.00
Fixed costs  
Manufacturing $ 82,500
Selling 42,000
Administrative 356,000
Total fixed costs $ 480,500
Selling price per unit $ 67.00
Expected sales (units) 30,000

 

a. What will be the new breakeven point if the additional $200,000 is spent on advertising?

b. Prepare a contribution income statement at the new breakeven point.

c. What is the percentage change in both fixed costs and in the breakeven point?

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