Tony Manufacturing Produces a Single Product That Sells for $80

question 207

Multiple Choice

Tony Manufacturing produces a single product that sells for $80.Variable costs per unit equal $30.The company expects total fixed costs to be $78,000 for the next month at the projected sales level of 2,500 units.In an attempt to improve performance,management is considering a number of alternative actions.Each situation is to be evaluated separately.Suppose management believes that a $75,000 increase in the monthly advertising expense will result in a considerable increase in sales.Sales must increase by ________ to justify this additional expenditure?

• A) 1,698 units
• B) 1,500 units
• C) 1,550 units
• D) 1,339 units

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Definitions:

Target Payout Ratio

The proportion of earnings a company plans to distribute to its shareholders as dividends, often expressed as a percentage.

Internal Rate

Short for Internal Rate of Return (IRR), it's a financial metric used to estimate the profitability of potential investments, calculated as the rate of return that sets the net present value of all cash flows from the investment equal to zero.

Required Return

The minimum return an investor expects to achieve on an investment, taking into account the risk level and other available opportunities.

Homemade Dividend

A concept where investors create their own dividend stream by selling a portion of their portfolio of equities instead of relying on company-issued dividends.