R. A. Ro and Company, a manufacturer of quality handmade walnut bowls, has had a steady growth in sales for the past five years. However, increased competition has led Mr. Ro, 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. Ro with the following data for the current year, 2005:

Variable cost (per bowl)

Direct materials ..................................................... $3.25

Direct manufacturing labor ........................................ 8.00

Variable overhead (manufacturing, marketing,

distribution, and customer service) .............................. 2.50

Total variable cost per bowl ....................................... $13.75

Fixed costs

Manufacturing$ .................................................... 25,000

Marketing, distribution, and customer service .................. 110,000

Total fixed costs ....................................................$135,000

Selling price ......................................................... $25.00

Expected sales, 20,000 units ......................................$500,000

Income tax rate ...................................................... 40%

Required

1. What is the projected net income for 2005?

2. What is the breakeven point in units for 2005?

3. Mr. Ro has set the revenue target for 2006 at a level of $550,000 (or 22,000 bowls). He believes an additional marketing cost of $11,250 for advertising in 2006, with all other costs remaining constant, will be necessary to attain the revenue target. What is the net income for 2006 if the additional $11,250 is spent and the revenue target is met?

4. What is the breakeven point in revenues for 2006 if the additional $11,250 is spent for advertising?

5. If the additional $11,250 is spent, what are the required 2006 revenues for 2006 net income to equal 2005 net income?