Problem

A summary of the budged income statement of Port Williams Gift follows:

Net Revenue : $ 800,000

Less expenses, including $ 400,000 of fixed expenses : $ 880,000

Net Loss : $ (80,000)

The manager believes that an additional outlay of $ 200,000 for advertising will increase sales substantially.

(i) At what sales volume will the store break even after spending $ 200,000 on advertising?

(ii) What sales volume will result in a net profit of $ 40,000 after spending the $ 200,000 on advertising?