Question

J. T. Brooks 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, 2014:
Variable cost (per bowl)
Direct materials ..................... $ 3.00
Direct manufacturing labor ................ 8.00
Variable overhead (manufacturing, marketing, distribution,
and customer service) .................. 7.50
Total variable cost per bowl ...............$ 18.50
Fixed costs
Manufacturing .................. $ 20,000
Marketing, distribution, and customer service ..... 194,500
Total fixed costs .................. $ 214,500
Selling price .................. $ 35.00
Expected sales, 22,000 units ........... $ 770,000
Income tax rate ................ 40%

Required
1. What is the projected net income for 2014?
2. What is the breakeven point in units for 2014?
3. Mr. Brooks has set the revenue target for 2015 at a level of $ 875,000 (or 25,000 bowls). He believes an additional marketing cost of $ 16,500 for advertising in 2015, with all other costs remaining constant, will be necessary to attain the revenue target. What is the net income for 2015 if the additional $ 16,500 is spent and the revenue target is met?
4. What is the breakeven point in revenues for 2015 if the additional $ 16,500 is spent for advertising?
5. If the additional $ 16,500 is spent, what are the required 2015 revenues for 2015 net income to equal 2014 net income?
6. At a sales level of 25,000 units, what maximum amount can be spent on advertising if a 2015 net income of $ 108,450 is desired?



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  • CreatedMay 14, 2014
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