Kenno Company produces two products: squares and circles. The projected income for the coming year, segmented by product line, follows:

The selling prices are $30 for squares and $50 for circles.
Required:
1. Compute the number of units of each product that must be sold for Kenno Company to break even.
2. Assume that the marketing manager changes the sales mix of the two products so that the ratio is three squares to five circles. Repeat Requirement 1.
3. Refer to the original data. Suppose that Kenno can increase the sales of squares with increased advertising. The extra advertising would cost an additional $245,000, and some of the potential purchasers of circles would switch to squares. In total, sales of squares would increase by 25,000 units, and sales of circles would decrease by 5,000 units. Would Kenno be better off with this strategy?

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Squares Circles Total Sales Less: Variable expenses Contribution margin Less: Direct fixed expenses Product margin Less: Common fixed expenses Operating income $300,000 $2,500,000 500,000 2,000,000 $2,800,000 2,200,000 200,000 28,000 S172,000 1,528,000 $ 672,000 $ 500,000 100,000 $ 572,000