CVP, income taxes. (CMA) R. A. Ro and Company, a manufacturer of quality handmade walnut bowls, has experienced a steady growth in sales for the past five years. However, increased competition has led Mr. Ro, 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. Ro with the following data for the current year, 194:

Variable costs (per bowl):

Direct manufacturing labor $ 8.00 Direc materials 3.25 Variab'e overhead

(Manufacturing, marketing distribution, customer service, & administration) 2.50 Total "ariable costs $13.75 Fixed costs:

Manufacturing $ 25,000 Marketing, distribution, & customer service 40,000 Administrative 70,000 Total fix jd costs $135,000 Selling p ice per bowl $25.00 Expectec sales, 19_4 (20 C 00 units) $500,000 Income tax rate: 40%

Required 1. What is the projected net income for 194?
2. What is the breakeven point in units for 19_4?
3. Mr. Ro has set the sales target for 19_5 at a levei :>f $550,000 (or 22,000 bowls). He believes an additional marketing cost of 511,250 for adven .^ing in 19_5, with all other costs remain- ing constant, will be necessary to attain the dollar sales target. What will be the net income for 19 5 if the additional Sll,250 is spent and the dollar sales target is met?
4. What will be the breakeven point in sales dollars for 19_5 if the additional Sll,250 is spent for advertising?
5. If the additional SI 1 ,250 is spent for advertising in 19_5, what is the required 195 sales dollars for 19_5's net income to equal 19_4's net income? 6. At a sales level of 22,000 units, what maximum amount can be spent on advertising if a 19_5 net income of $60,000 is desired?