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6. Max Leonard, vice president of Marketing for Dysk Computer, Inc., must decide whether to introduce a midpriced version of the firm's DC6900 per- sonal computer product line-the DC6900-X. The DC6900-X would sell for $3,900, with unit variable costs of $1,800. Projections made by an indepen- dent marketing research firm indicate that the DC6900-X would achieve a sales volume of 500,000 units next year, in its first year of commercialization. One-half of the first year's volume would come from competitors' personal computers and market growth. However, a consumer research study indicates CHAPTER 2 FINANCIAL ASPECTS OF MARKETING MANAGEMENT the budgeted sales force expenditure. The sales director's budget for salaries and fringe benefits of the sales force and noncommission selling costs for both the Corporate and Home Office Systems groups was $7.5 million. The advertising and promotion budget contained three elements: trade magazine advertising, cooperative newspaper advertising with Century Office Systems, Inc. dealers, and sales promotion materials including product brochures, technical manuals, catalogs, and point-of-purchase displays. Trade magazine ads and sales promotion materials were to be developed by the company's advertising and public relations agency. Production and media placement costs were budgeted at $300,000. Cooperative advertising copy for both newspaper and radio use had budgeted production costs of $100,000. Century Office Systems, Inc.'s cooperative advertising allowance policy stated that the company would allocate 5 percent of company sales to dealers to promote its office systems. Dealers always used their complete cooperative advertising allowances. Meetings with manufacturing and operations personnel indicated that the direct costs of material and labor and direct factory overhead to produce the Home Office System product line represented 50 percent of sales. The accounting department would assign $600,000 in indirect manufacturing overhead (for example, depreciation, maintenance) to the product line and $300,000 for administrative overhead (clerical, telephone, office space, and so forth). Freight for the product line would average 8 percent of sales. Blake's staff consisted of two product managers and a marketing assistant Salaries and fringe benefits for Ms. Blake and her staff were $250,000 per year. a. Prepare a pro forma income statement for the Home Office Systems group given the information provided. b. Prepare a pro forma income statement for the Home Office Systems group given annual sales of only $20 million. c. At what level of dollar sales will the Home Office Systems group break even

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