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Golden Company: Breaking Even and Additional Sales for Promotions

The Golden Company has experienced a steady growth in the past three years. The managemetn of the company believes that an additional sales promotion program is necessary to maintain the compan's present growth. The company's normal activity is 20,000 units per year. The following budgeted data have been prepared for the current year 2001.

Unit Variable Cost $15
Fixed Cost:
Factory Overhead 30,000
Marketing 40,000
Administrative 20,000
Unit Selling Price 30
Budgeted Sales and Production 20,000 units

1. Calculate the break even point in units for 2001.
2. Determine the additional sales in dollars so that income in 2002 will equal 2001 budgeted profit, if an additional $15,000 will be spent for the sales promotion in 2002.
3. Determine the maximum amount that can be spent on the additional sales promotion in 2002 to generate an overall sales level of 30,000 units if a profit of $280,000 is desired.

Solution Summary

The break even point and the additional sales required to compensate for a sales promotion is determined.