Question

Bear Co. has gathered the following information regarding the sale of the company’s single product:

Existing sales	27,000 Units
Unit selling price	$14.50
Variable product costs	$7.00
Variable selling expenses	$.50
Fixed overhead costs	$86,000
Fixed Selling & administrative expenses	$100,000

Required: Answer the following clearly, showing as much work as is possible.

1. Determine the break-even point in units.
2. The marketing department at Bear Co. is suggesting a new advertising campaign for the next year at a cost of $50,000. The marketing department is certain that the new campaign would result in the company being able to increase the unit selling price to $16. Calculate the new breakeven point in units assuming the company invests in the new campaign:
3. Based on your quantitative findings in the two preceding questions, determine whether Bear Co. should undertake the new advertising campaign and provide reasoning for your determination.

Answer 1