A.S Wu 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. Wu, the president, to believe that an aggressive marketing campaign will be necessary next year maintain the company's present growth.
To prepare for next year's marketing campaign, the company's controller has prepared and presented Mr. Wu with the following data for the current year, 2014:
1. What is the projected net income for 2014?
2. What is the breakeven point in units for 2014?
3. Mr. Wu has set the revenue target for 2015 at a level of $728500 (or 23500 bowls). He believes an additional marketing cost of $52700 for advertising in 2015, with all other costs remaining constant, will be necessary to attain the revenue target. What is the net income for 2015 if the additional $52700 is spent and the revenue target is met?
4. What is the breakeven point in revenues for 2015 if the additional $52700 is spent for advertising?
5. If the additional $52700 is spent, what are the required 2015 revenues for 2015 net income to equal 2014 net income?
6. At a sales level of 23500 units, what maximum amount can be spent on advertising if a 2015 net income of $83580 is desired?
Variable cost (per bowl)
Direct Materials $3.75
Direct manufacturing labor 7.00
Variable OH (manufacturing, marketing, distribution and customer service) 4.75
Total variable cost per bowl $15.50
Fixed costs
Manufacturing $14000
Marketing, distribution, and customer service 156500
Total fixed costs $170500
Selling price $31.00
Expected sales, 22000 units $682000
Income tax rate 40%