Question

T.J. Brown 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. Brown, 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. Brown with the following data for the current year, 2017: (Click the icon to view the data.) Read the requirements. Requirement 1. What is the projected net income for 2017? Using the equation method, select the basic formula used to compute the target net income for 2017. i Data Table i Requirements Variable cost (per bowl) Direct materials Direct manufacturing labor 1. 2. 3. 3.25 7.00 1.35 Variable overhead (manufacturing, marketing, distribution and customer service) 11.60 What is the projected net income for 2017? What is the breakeven point in units for 2017? Mr. Brown has set the revenue target for 2018 at a level of $667,000 (or 23,000 bowls). He believes an additional marketing cost of $27,840 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 $27,840 is spent and the revenue target is met? What is the breakeven point in revenues for 2018 if the additional $27,840 is spent for advertising? If the additional $27,840 is spent, what are the required 2018 revenues for 2018 net income to equal 2017 net income? At a sales level of 23,000 units, what maximum amount can be spent on advertising if a 2018 net income of $86,646 is desired? Total variable cost per bowl Fixed costs Manufacturing $ Marketing, distribution, and customer service 20,000 206,200 226,200 5. $ 6. Total fixed costs Selling price Expected sales, 19,000 units Income tax rate $ $ 29.00 551,000 40% Print Print Done Done Print Done

Answer 1

Income Statement
	1	3	5
	2017	2018
Expected Sales	551000	667000	597400
Variable costs
Direct material	61750	74750
Direct labor	133000	161000
Variable overhead	25650	31050
Contribution Margin	330600	400200	358440	400200
Fixed costs
Manufacturing	20000	20000	20000	20000
Marketing	206200	234040	234040	206200
Income before tax	104400	146160	104400	144410
Less: Income tax	41760	58464	41760	57764
Net Income	62640	87696	62640	86646
2.Break even point in units = Fixed costs/CM per unit
13000	units
3.Net Income will be $87,696
4.Break even point = Fixed costs/CM Ratio
423400	Dollars
5.Required Revnenue = $597400
6.Maximum amount on advertising	29590

1 Income Statement 2 2017 2018 667000 551000 =B4*D9/B9 =3.25*19000 =7*19000 =1.35*19000 =B4-SUM(B6:B8) =3.25*23000 =7*23000 =1.35*23000 =C4-SUM(C6:08) I=SUM(D11:D13) =C9 20000 20000 20000 =B11 206200 1=206200+27840 =206200+27840 =B12 =B9-SUM(B11:B12) =C9-SUM(C11:C12) =B13 =E15/0.6 =B13*40% =C13*40% =B14 =E13*40% =B13-B14 =C13-C14 =B15 86646 4 Expected Sales 5 Variable costs 6 Direct material 7 Direct labor 8 Variable overhead 9 Contribution Margin 10 Fixed costs 11 Manufacturing 12 Marketing 13 Income before tax 14 Less: Income tax 15 Net Income 16 17 2.Break even point in units = Fixed costs/CM per unit 18 =(B11+B12)/17.4 19 20 3.Net Income will be $87,696 21 22 4.Break even point = Fixed costs/CM Ratio 23 =(C11+C12)/0.6 24 25 5. Required Revnenue = $597400 26 27 6. Maximum amount on advertising units Dollars =E9-SUM(E11:E13)