Lowman Inc. sells a product with a sales price of $25 per unit, variable costs of $10 per unit, and total fixed costs of $100,000. Lowman is looking into implementing an aggressive advertising campaign that will cost $45,000. By what amount do sales dollars need to at least increase by in order for the company's overall profits to not decrease by having the advertising campaign?

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The profit equation for the company whose costs are outlined here abides by a common formula:

(selling price - variable cost per unit) * (quantity of goods sold) - fixed costs = operating income. The break-even unit quantity can be determined by setting the equation equal to 0.

Here, selling...

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The profit equation for the company whose costs are outlined here abides by a common formula:

(selling price - variable cost per unit) * (quantity of goods sold) - fixed costs = operating income. The break-even unit quantity can be determined by setting the equation equal to 0.

Here, selling price is $25, the variable cost is $10, and the fixed costs are $100,000.

So we have the following equation, where "x" represents the quantity of goods sold:

($25-$10)*x - $100,000 = 0

= $15x - $100,000 = 0

$15x = $100,000

x = 6666.66 (or about 6667 units)

We can use the same equation again with the added advertising cost (lumping it together with the other fixed costs). This will give us a new value of "x," which we can then multiply by the dollar amount per unit to get the overall difference in sales cost.

($25-$10)*x - $145,000 = 0

= $15x-$145,000 =0

$15x = $145,000

x = 9666.66 (or about 9667 units)

So, 9667 units (the new break-even point) -6666 units (the old break-even point) = 3000 additional units that need to be sold to support the advertising campaign. Because this question asks about sales dollars, we can multiply the $25 cost per unit by 3000 units to achieve:

$25 * 3000 = $75,000 sales dollars

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