Question

A manufacturer of quality handmade walnut​ bowls, has had a steady growth in sales for the past 5 years. ​ However, increased competition has led. What is the projected net income for 2017? 2.What is the breakeven point in units for 2017​? 3.The company has set the revenue target for 2018 at a level of $ 78400 (or 24500 ​bowls). They believes an additional marketing cost of $ 63360 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 $ 63360 is spent and the revenue target is​ met? 4. What is the breakeven point in revenues for 2018 if the additional $ 63360 is spent for​ advertising? 5. If the additional $ 63360 is​ spent, what are the required 2018 revenues for 2018 net income to equal 2017 net​ income? 6.At a sales level of 24500 ​units, what maximum amount can be spent on advertising if a 2018 net income of $ 93084 is​ desired? ​, 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 the following data for the current​ year, 2017. ​

Variable cost (per bowl)
	Direct materials		$3.50
	Direct manufacturing labor		7.50
	Variable overhead (manufacturing, marketing, distribution and customer service)		3.40
		Total variable cost per bowl	$14.40
Fixed costs
	Manufacturing		$16,000
	Marketing, distribution, and customer service		195,200
		Total fixed costs	$211,200
Selling price			$32.00
Expected sales, 22,500 units			$720,000
Income tax rate			40%

Answer 1

Ans-1- The projected income net income for 2017:-

Particulars	Amount ($)
Sales (22,500 units *$32)	720,000
Less: Variable Cost @$14.40 per unit	324,000
Contribution	396,000
Less: Fixed Cost	211,200
Operating Income	184,800
Less: Income tax @40%	73,920
Net Income	110,880

2-The Breakeven point in units for 2017:-

B.E.P. in units= Fixed Cost/ Contribution per unit

=$211,200/ $17.6

=12,000 units

Contribution per unit= Contribution/ Number of units

=$396,000/22,500

=$17.6 per unit

3- Net Income for 2018:-

Particulars	Amount ($)
Sales (24,500*$32)	784,000
Less:- Variable Cost $14.40 per unit (24,500*$14.40)	352,800
Contribution	431,200
Less: Fixed Cost ($211,200+$63,360)	274,560
Operating Income	156,640
Less: Income Tax @40%	62,656
Net Income	93,984

4-The Breakeven point 2018 is calculated as follows:-

Breakeven in units= Fixed Cost/ Contribution per unit

=$274,560/ 17.6  

=15,600 units

5- Let the required sales units to equal 2017 net income:-

B.E.P. in units= Fixed Cost + Desired Profit/ Contribution per units

=$274,560+$184,800/$17.6 ($32-$14.40)

=261,00 units

26,100 units *$32= $835,200

6-Let X be the amount spent for advertising in 2018 on sales level of 24,500 units,

Therefore:-

$784,000-$352,800-($211,200+x)=$93,084/ 0.60

$431,200-$211,200-x=$155,140

x=$220,000-$155,140

x=$64,860

The maximum amount that can be spent on advertising is $64,860.

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