Question

Question 32

Martin Footwear Co. produces high-quality shoes. To prepare for next year’s marketing campaign, the company’s controller has prepared the following information for the current year, 2020:

Variable costs (per pair of shoes)
	Direct materials		$37.00
	Direct manufacturing labour		17.00
	Variable overhead (manufacturing, marketing, distribution, customer service, and administration)		19.00
	Total variable costs		$73.00
Fixed costs
	Manufacturing		$2,500,000
	Marketing, distribution, and customer service		450,000
	Administrative		700,000
	Total fixed costs		$3,650,000

Selling price per pair of shoes		$173
Expected revenues, 2020 (50,000 units)		$8,650,000
Income tax rate		40%

The company controller has set the revenue target for 2021 at $9,515,000 (or 55,000 pairs). He believes an additional marketing cost of $400,000 for advertising in 2021, with all other costs remaining constant, will be necessary to attain the revenue target. Calculate the operating income for 2021 if the additional $400,000 is spent and the revenue target is met.

Operating income

$

Answer 1