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Unformatted text preview: iated with the game amount to $75,000 per year. Required a. Compute the break-even point in units for the game. b. Assuming that the tax rate is 40 percent and the desired profit level is $120,000 after tax, compute the required unit sales level. Orientation (L.O. 4) 3-47. Extensions of the CVP Analysis—Taxes Eagle Company makes the MusicFinder, a Preparing and Organizing Yourself sophisticated satellite radio. Eagle has experienced a steady growth in sales for the past five years. However, Ms. Luray, Eagle’s CEO, believes that to maintain the company’s present growth will for Success in College require an aggressive advertising campaign next year. To prepare for the campaign, the company’s accountant, Mr. Bednarik, has prepared and presented to Ms. Luray the following data for the current year, Year 1: Variable costs: Direct labor (per unit) . . . . . . . . . . . . . . . . . . . . . . . . . Direct materials (per unit) . . . . . . . . . . . . . . . . . . . . . . Variable overhead (per unit) . . . . . . . . . . . . . . . . . . . . $ $ Total variable costs (per unit) . . . . . . . . . . . . . . . . . Fixed costs (annual): Manufacturing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Selling. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Administrative . . . . . . . . . . . . . . . . . . . . . . . . C .H. A .P. T ... Total fixed costs (annual) . . . . . . . . . . . . . . . . . . . . 100.00 45.00 20.00 165.00 $ 400,000 300,000 IN P 800,000A ERS RT ONE $ 1,500,000 Selling price (per unit) . . . . .1. . . . . . . . . . . Yourself Making . . . . . . . . Expected sales revenues, Year 1 (25,000 units) . . . . $400.00 Successful in College $10,000,000 Eagle has an income tax rate of 35 percent. 2 Approaching College Reading and Developing a College-Level Vocabulary Ms. Luray has set the sales target for Year 2 at a level of $11,200,000 (or 28,000 radios). Required a. What is the projected after-tax operating profit for Year 1? 3 Approaching College Assignments: b. What is the break-even point in units for Year 1? Reading Textbooks and Following Directions c. Ms. Luray believes that to attain the sales target (28,000 radios) will require additional selling expenses of $300,000 for advertising in Year 2, with all other costs remaining constant. What will be the after-tax operating profit for Year 2 if the firm spends the additional $300,000? d. What will be the break-even point in sales dollars for Year 2 if the firm spends the additional $300,000 for advertising? e. If the firm spends the additional $300,000 for advertising in Year 2, what is the sales level in dollars required to equal the Year 1 after-tax operating profit? ✓ Related Resources f. At a sales level of 28,000 units, what is the maximum amount the firm can spend on advertis- 000 to 000 See pages ing to earn an after-tax operating profit of $750,000? of the Annotated Instructor’s (CMA adapted) Edition for general sugges- (L.O. 4) tio...
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This note was uploaded on 02/07/2014 for the course MIS 304 taught by Professor Mejias during the Spring '07 term at University of Arizona- Tucson.

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