Sports Plus, Inc., produces software for personal computers. The company’s main product is Swing!, a golf training program. The total variable cost of the product is $10. Fixed manufacturing expenses are $60,000 per month, and the price of the product is $300. In the coming year, the company plans to spend $100,000 for advertising and $50,000 for research and development. Because this proprietorship is managed from a personal residence, it incurs no other fixed costs. The federal and state tax rate for the proprietor is 40 percent. The company expects 6,000 units of sales for the next year.

Required

1. Determine the breakeven point for the coming year in number of units.

2. Suppose that 20 percent of the manufacturing fixed costs are batch-level costs from testing and packaging. Because of the nature of the testing process, all production has the same batch size of 20 units. Calculate the revised breakeven point.

3. Using a volume-based approach as in part 1 above, determine the number of units required for the coming year to cover a 100 percent increase in advertising expenses and a $12,000 after-tax profit permonth.