Question

In: Accounting

Variable cost (per pound) Direct materials $3.75 Direct manufacturing labor 8.00 Variable overhead (manufacturing, marketing, distribution...

Variable cost (per pound)

Direct materials $3.75

Direct manufacturing labor 8.00

Variable overhead (manufacturing, marketing, distribution and customer service) 2.05

Total variable cost per bowl $13.80

Fixes costs

Manufacturing $12,000

Marketing, distribution, and customer service 214,800

Total fixed cost $226,800

Selling price $30

Expected sales, 19,500 units $585,000

Income tax rate 40%

S.L. Brook and Company, a manufacturer of quality handmade walnut bowls, has had a steady growth in sales for the past 5 years. However, increased competition has led Mr. Brooks, the president, to believe that an aggressive marketing campaign will be necessary next year to maintain the company's present growth. To prepare for next year's marketing campaign, the company's controller has prepared and presented Mr. Brooks with the following data for the current year, 2017:

Requirement 1. What is the projected net income for 2017?

Revenues

-

Variable costs

-

Fixed costs

=

Target net income

/

1 – Tax rate

Compute the target net income for 2017 using the above formula. The Net Income is: ?

Requirement 2. What is the breakeven point in units for 2017?

Compute how many bowls are needed to break even using this formula (Enter applicable values to the nearest cent, $X.XX.)

Fixed costs

/

Contribution margin per bowl

=

Bowls needed to break even

$ ? /

$ ?

=

?

Requirement 3. Mr. Brooks has set the revenue target for 2018 at a level of$ 690,000 (or 23,000 bowls). He believes an additional marketing cost of $19,440 for advertising in 2018, with all other costs remaining constant, will be necessary to attain the revenue target. What is the net income for 2018 if the additional $19,440 is spent and the revenue target is met?

The target net income for 2018 is: $

?

Requirement 4. What is the breakeven point in revenues for 2018 if the additional $19,440 is spent for advertising? (Do not round any of your calculations.)

The breakeven point in revenues for 2018 is: $

?

Requirement 5. If the additional $19,440 is spent, what are the required 2018 revenues for 2018 net income to equal 20172017 net income?

Using the basic formula determined in requirement 1, compute the required number of units first, then the required revenue. (Do not round any of your calculations.)

The required number of units is:

?

The required revenue is: $

?

Requirement 6. At a sales level of 23,000 units, what maximum amount can be spent on advertising if a 2018 net income of $75,516 is desired? (Do not round any of your calculations.) Use the basic formula determined in requirement 1.

The maximum amount that can be spent on advertising is: $

?

Expert Solution

ekkarill92 answered 1 year ago

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