Required 1. Calculate the breakeven point in units and sales dollars for 2007.

2. Calculate the breakeven point in units and sales dollars for 2008 at the expected sales mix.

3. Explain why the breakeven points in sales dollars calculated in requirements 1 and 2 are different.

4. What would you advise Andy Minton to do? Provide Andy with the support underlying your reasoning.

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 pre¬
pared and presented Mr. Ro with the following data for the current year, 2008:
Variable costs (per bowl):
Direct manufacturing labour $ 9.60 Direct materials 3.90 Variable overhead (manufacturing, marketing distribution, customer service, and administration) 3.00 Total variable costs $ 16.50 Fixed costs:
Manufacturing $ 30,000 Marketing, distribution, and customer service 48,000 Administrative 84,000 Total fixed costs $162,000 Selling price per bowl $ 30.00 Expected revenues, 2008 (20,000 units) $600,000 Income tax rate 40%
Required 1. What is the projected net income for 2008?
2. What is the breakeven point in units for 2008?
3. Mr. Ro has set the revenue target for 2009 at a level of $660,000 (or 22,000 bowls). He believes an additional marketing cost of $13,500 for advertising in 2009, with all other costs remaining constant, will be necessary to attain the revenue target. What will be the net income for 2009 if the additional $13,500 is spent and the revenue target is met?
4. What will be the breakeven point in revenues for 2009 if the additional $13,500 is spent for advertising?
5. If the additional $13,500 is spent for advertising in 2009, what is the required 2009 rev¬
enue for 2009’s net income to equal 2008’s net income?
6. At a sales level of 22,000 units, what maximum amount can be spent on advertising if a 2009 net income of $72,000 is desired?