TinRoof, Inc., manufactures and sells a do-it-yourself storage shed kit. In 2013, it reported the following:

Units produced and sold ......... 3,200

Investment ...............$ 2,400,000

Markup percentage on full cost ....... 8%

Rate of return on investment ........ 12%

Variable cost per unit .......... $ 500

Required

1. What was TinRoof’s operating income in 2013? What was the full cost per unit? What was the selling price? What was the percentage markup on variable cost?

2. TinRoof is considering increasing the annual spending on advertising by $ 175,000. The managers believe that the investment will translate into a 10% increase in unit sales. Should the company make the investment? Show your calculations.

3. Refer back to the original data. In 2014, TinRoof believes that it will only be able to sell 2,900 units at the price calculated in requirement 1. Management has identified $ 125,000 in fixed cost that can be eliminated. If TinRoof wants to maintain an 8% markup on full cost, what is the target variable cost per unit?