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 Jan has set the sales target for 35,000 ice cream makers, which she thinks she can achieve by an additional fixed selling expense of $200,000 for advertising. All other costs remain as per the data in the above table. What will be the operating profit if the additional $200,000 is spent on advertising and sales rise to 35,000 units?

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

Jan has set the sales target for 35,000 ice cream makers, which she thinks she can achieve by an additional fixed selling expense of $200,000 for advertising. All other costs remain as per the data in the above table. What will be the operating profit if the additional $200,000 is spent on advertising and sales rise to 35,000 units?

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