Response to the following problem:
Garden Marbles manufactures birdbaths, statues, and other decorative items, which it sells to florists and retail home and garden centers. Its design department has proposed a new product, a statue of a frog, that it believes will be popular with home gardeners. Expected variable unit costs are direct materials, $3.05.
The following are fixed costs: depreciation, building, and equipment, $33,000; advertising, $40,000; and other, $6,000. Management plans to sell the product for $29.25.
Required :
1. Using the contribution margin approach, compute the number of statues the company must sell to (a) break even and (b) earn a profit of $50,000.
2. Using the same data, compute the number of statues that must be sold to earn a profit of $70,000 if advertising costs rise by $20,000.
3. Using the original data and sales of 15,000 units, compute the selling price the company must charge to make a profit of $100,000.
4. According to the vice president of marketing, Yvonne Palmer, if the price of the statues is reduced and advertising is increased, the most optimistic annual sales estimate is 25,000 units. How much more can be spent on fixed advertising costs if the selling price is reduced to $28.00 per statue, if the variable costs cannot be reduced, and if the targeted profit for sales of 25,000 statues is $120,000?