Dream world Resorts maintains a water park and has experienced a steady growth in its sales for the past five years. Increased competition, however, has led the owners to believe that an aggressive advertising campaign will be necessary next year to maintain the present growth. In order to launch advertising campaign the next year, following data has been compiled for the year 2005.

Variable cost                                         Rs.137.50 per ticket

Total fixed cost for the year                    Rs.1,350,000

Sales price                                              Rs.250.00 per ticket Expected sales 2005 – 20,000 ticket                                         Rs.5,000,000 Income tax rate                                               35%

The resort has set sales target for 2006 at a level of Rs.5,500,000 or 22,000 tickets.

Required:

• The project after tax net income for the year 2005.
• Number of tickets at breakeven point during the year 2005.
• After tax net income for the year 2006 if an additional fixed marketing expense of Rs.112,500 is spent on advertising in the year 2006 (with all other costs remaining constant) to attain the sales target for the year 2006.
• The breakeven point in value for the year 2006 if additional Rs.112,500 is spend on advertising.
• The required sale (value) to equal after tax net income for the year 2005 if additional Rs.112,500 is spent on advertising in the year 2006.
• 
  The maximum amount that can be spent on additional advertising at a sales level of 22,000 tickets, if an after tax net income of Rs.600,000 is desired.

Answer rating: 100% (QA)

1 2005 20000 Expected ticket saleA Sales priceB 250 SalesCAB 5000000 Variable CostD 138 Contributio... View the full answer