Assignment #2 - Question 1 (5 Marks)

The UConn Company, a manufacturer of quality handmade wallets, has had a steady growth in sales for the past five years. However, increase competition has led Mr. Rosario, the president, to believe that an aggressive marketing campaign will be necessary next year to maintain the companys growth. To prepare for the next years marketing campaign; the companys controller has prepared and presented Mr. Rosario with the following data for the current year 2019:

Variable Cost (Per Wallet
Direct materials	3.25
Direct manufacturing Labour	8
Variable overhead	2.5
Total Variable cost	13.75
Fixed Cost
Manufacturing	25,000.00
Marketing, distribution and customer service	110,000.00
	135,000.00
Selling price	25.00
Expected Sales, 20,000 units	$ 500,000.00
Income tax rate	40.00%

Required:

a) What is the projected net income for 2019? (1 Marks)

b) What is the breakeven point in units for 2019? (1 Marks)

c) Mr. Rosario has set the revenue target for 2020 at a level of $550,000 (or 22,000 wallets). He believes an additional marketing cost of $11,250 for advertising in 2020 with all other costs remaining constant, will be necessary to attain the revenue target. What is the net income for 2020 if the additional $11,250 is spent and the revenue target is met? (1 Marks)

d) What is the breakeven point in revenues for 2020 if the additional $11,250 is spent for advertising? (1 Marks)

e) At a sales level of 22,000 units, what maximum amount can be spent on advertising if a 2020 net income of $60,000 is desired? (1 Marks)