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    Break-Even Analysis of Operating Statistics

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    High School Traditions operates a shop that makes and sells class rings for local high schools. Operating statistics follow:

    Average selling price per ring $250
    Variable costs per ring:
    Rings and stones $ 90
    Sales commissions 18
    Variable overhead 8
    Annual fixed cost:
    Selling expenses $42,000
    Administrative expenses 56,000
    Production 30,000

    The company's tax rate is 30 percent.


    1. What is the firm's break-even point in rings? In revenue?
    2. How much revenue is needed to yield $140,000 before-tax income?
    3. How much revenue is needed to yield an after-tax income of $120,000?
    4. How much revenue is needed to yield an after-tax income of 20 percent of revenue?
    5. The firm's marketing manager believes that by spending an additional $12,000 in advertising and lowering the price by $20 per ring, he can increase the number of rings sold by 25%. He is currently selling 2,200 rings. Should he make these changes? Show proof.

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    Solution Summary

    This solution shows step-by-step calculations to determine the break-even point, the required revenue, and the effects of spending more money of advertising and lowering prices. All formulas are shown in an Excel file.