Q$5$: $(20$ marks$)$

The $($ABC$)$ Company produces a single product: an inexpensive plastic toy doll. This item sells for $$4\mathrm{.}00$ per unit, and has variable costs $($manufacturing plus marketing$)$ of $$2\mathrm{.}50$ per unit. Monthly fixed costs amount to approximately $$60,000.$ Last month, sales reached $100,000$ units. Management would like to do some financial planning, the end. tesult of which would$-$it is hoped$-$be even better future financial performance. As a management accountant you have been asked to construct a planning model and to conduct "what$-$If$"$ analyses with the model you develop.

Management has told you to consider the following options, all of which have the potential to increase the profitability of the company:

A$.$ Increase monthly promotional and advertising costs.

B$.$ Increase raw material quality and increase the product selling price.

C$.$ Increase the product selling price, with no increase in the raw material costs.

Required: $($show calculations$)$

The sales manager of the company is faitly. Panfident that a well$-$done marketing campaign could increase sales volume substantially, perhaps as much as doubling sales from the current position. The president of the company would tike to increase operating profits by $50\%$ over those of the most recent month. You are asked to determine how much the company could afford to spend on an intensive marketing campaign, in srdev. it achieve the projected doubling of sales volume? $(7$ marks$)$

As an alternative to $1$ above, assume that the company increases the quality of its raw materials going into the manufacturing of tis product. This increase would result in a new variable cost per unit of $$3\mathrm{.}00.$ What is the required increase in selling price per unit that would be needed to maintain the same break$-$even volume as currently exists? $(7$ marks$)$

As a final alternative, assume that the company has decided to increase the seling price of its product by $$1$ per unit, with no accompanying marketing and promotion campaign. What is the unit sales volume needed, with the new seling price, for the company to make the same amount of proft as it did last month? $(6$ marks$)$