Cost Schedule:

Variable costs per widget: D.Labor $12.00 D. Material 6.00 Variable Overhead 3.00 Total Variable Cost: $21.00

Fixed Cost: Manufacturing $50,000 Selling 60,000 Administrative 90,000 Total Fixed Costs: $200,000

Selling price per pipe: $50.00 Expected sales this year (year 1) (40,000 units) $2,000,000 Tax Rate: 40%

The president has set the sales target for year 2 at the level of $2,200,000 (or 44,000 widgets).

Required: a) What is the projected after-tax operating profit for year 1? b) What is the break-even point in units for year 1? c) The president believes that an additional expense of $40,000 for advertising in year 2, with all other costs remaining constant, will be necessary to attain the sales target. What will be the after-tax net income for year 2 if the additional $40,000 is spent? d) What will be the break-even point in dollar sales for year 2 if the additional $40,000 is spent for advertising?