Toni plans to use the following data as a planning estimate for second-year operations of the hot tub product line at Deck & Grounds, Inc.
a. If Deck & Grounds charges an average of $6,250 for a hot-tub installation, what will be the break-even point?
b. Explain the planned decrease in fixed costs (compared with first-year operations as described in your book). Is Toni's year-two assumption realistic? Why or why not?
c. Frank wants to run an advertising campaign to promote the hot tubs during year two. Should the cost of the ad campaign be charged as a fixed cost to the hot tubs? Explain.
d. Suppose the ad campaign is projected to cost $12,000 and it is to be charged to the hot tub line (as a fixed cost). How will that affect break-even volume?
e. Should any of the owner/managers' costs (salaries, benefits, etc.) be charged to the hot tub line? Why or why not?
f. In a small business like Deck & Grounds, the overlap among functions (operations, marketing, and accounting in this case) stands out. Would you expect similar overlap to exist in large corporations? Explain