Problem
KoKo 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. KoKo?, 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. KoKo with the following data for the current year, 20142014?: Variable cost (per bowl) Direct materials $3.00 Direct manufacturing labor 7.00 Variable overhead (manufacturing, marketing, distribution and customer service) 3.80 Total variable cost per bowl $13.80 Fixed costs Manufacturing $12,000 Marketing, distribution, and customer service 214,800 Total fixed costs $226,800 Selling price $30.00 Expected sales, 19,500 units $585,000 Income tax rate 40%
1. What is the projected net income for 2014?
2. What is the breakeven point in units for 2014?
3. Mr. KoKo has set the revenue target for 20152015 at a level of $ 690,000$690,000 ?(or 23 comma 00023,000 ?bowls). He believes an additional marketing cost of $ 19 comma 440$19,440 for advertising in 20152015?, with all other costs remaining constant, will be necessary to attain the revenue target. What is the net income for 20152015 if the additional $ 19 comma 440$19,440 is spent and the revenue target is met?
4. What is the breakeven point in revenues for 2015 if the additional $ 19 comma 440 $19,440 is spent for advertising?
5. If the additional $ 19 comma 440 $19,440 is spent, what are the required 20152015 revenues for 2015 net income to equal 2014 net income?
6. At a sales level of 23 comma 000 23,000 ?units, what maximum amount can be spent on advertising if a 2015 net income of $ 75 comma 066$75,066 is desired?