Molly's Cupcakes managementistrying to decide whetherto stay in business. They are currently losing money andwantto know how close they are to making a profit and whether they should investin advertising.
Molly's provided the following information: Revenue $34,000? Expense 37,100 Profit(loss) <$3,100>
Managementresponded with the following information:
- Costs have beenmatched to revenue to determine what costsshould appear as expenses.
- The costs of goodsremaining in inventory are notincluded in expenses.
- There are no fixedmanufacturing costs.
- Cost ofsalesis 40% ofrevenue.
- $8,500 ofthe selling and administrative expenses are variable.
- Costs and selling prices are expected to remain stable for atleastthe nexttwo years.
Management wantsto know how close they are tomaking a profit. Compute the increase in revenue required for Molly'sto break even.
Management has the opportunity to investinmonthly advertising. This advertising is expected to increase sales volume by 25%. What is the most it should be willing to pay for this advertising?