example from different problem

P3-41 (similar to) J.T. Brooks and Company, a manufacturer of quality handmade walnut bowls, has had a steady growth in sales for the past 5 years. Howe campaign will be necessary next year to maintain the company's present growth. To prepare for next year's marketing campaign, the com !!! (Click the icon to view the data.) Read the requirements, Requirement 1. What is the projected net income for 2017? Using the equation method, select the basic formula used to compute the target net income for 2017 dy growth in sales for the past 5 years. However, increased competition has led Mr. Brooks, the president, to believe that an aggressive marketing or next year's marketing campaign, the company's controller has prepared and presented Mr. Brooks with the following data for the current year, 2017: - 2017 0 Requiremeni 3. What is the projected net income for 2017? What is the breakeven point in units for 2017? Mr. Brooks has set the revenue target for 2018 at a level of $672,000 (or 24.000 bowis). He believes an additional marketing cost of $33,880 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 $33,880 is spent and the revenue target is met? What is the breakeven point in revenues for 2018 if the additional $33,880 is spent for advertising? If the additional $33,880 is spent, what are the required 2018 revenues for 2018 net income to equal 2017 net income? At a sales level of 24,000 units, what maximum amount can be spent on advertising if a 2018 net income of $90,252 is desired? Print Done attractive on a net income basis the measure that drives shareholders' dividends and returns To make net income evaluations, CVP calculations for target income must be stated in terms of target net income instead of targel operating income. The first step is by rearranging the target net income formula to solve for the target operating income, then we substitute this formula for the target operating income in the target operating income formula. First step: Target net income Target operating income = = 1 - Tax rate Second step (Insert formula from the first step): Revenues - Variable costs - Fixed costs = Target net income 1 - Tax rate Before we begin, let's calculate the total variable costs with the information provided A.S. Lo 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. Lo, 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. Lo with the following data for the current year, 2017: (Click the icon to view the data.) mul Read the requirements. Deore we weg, e cuate ne tolai varie COSUS WIL Memormon provide X Expected sales (units) 19,500 Variable cost per unit 13.80 Variable costs 269,100 Now enter the remaining values in the formula from the information provided. Since we are solving for target net income, a "T has been entered in for the unknown net income figure. (Enter the tax rate to two decimal places, X.XX.) Revenues Variable costs Fixed costs = Target net income 1 (1 - Tax rate ) 585,000 $ 269,100 $ 226,800 1 (1 - 0.4 Calculate the target net income. (Click the icon for help with solving the target net income.) The target net income for 2017 is $ 53,460 Enter any number in the edit fields and then click Check Answer. VAT R u e present, 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. Ko with the following data for the current year, 2017: (Click the icon to view the data.) Read the requirements. Calculate the target net income. (Click the icon for help with solving the target net income.) The target net income for 2017 is $ 85,680 Requirement 2. What is the breakeven point in units for 2017? The breakeven point in units (or revenues) is the point when the quantity sold results in $0 operating income. That is, the quantity of output sold at which total revenues equals total costs. Since the breakeven point means zero net operating income there are no income taxes. The breakeven point is the level of sales at which fixed costs are recouped by the contribution margin earned. Use the following breakeven point formula to compute the number of bowls that are needed. Recall that the contribution margin per bowl is the selling price per bowl less the variable costs for each bowl. (Enter the contribution margin per bowl to the nearest cent, $X.XX.) Fixed costs Contribution margin per bowl - Bowls needed to break even 285,600 Enter any number in the edit fields and then click Check Answer. me mul R.T. Ko 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. Ko, 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. Ko with the following data for the current year, 2017 (Click the icon to view the data.) Read the requirements. Requirement 3. Mr. Ko has set the revenue target for 2018 at a level of $816,000 (or 24,000 bowls). He believes an additional marketing cost of $12,240 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 $12,240 is spent and the revenue target is met? We will use the same formula used in requirement 1 to determine the target net income. The only difference in this scenario is that the revenue target has changed to $816,000 (24,000 bowls) and Mr. Ko believes an additional marketing cost is needed to attain the new revenue target. You will need to calculate the new variable costs and fixed costs. Enter the known amounts. Since we are solving for target net income, a "T has been entered in for the unknown net income figure. - - Target net income 1 Revenues 816,000 Variable costs $ 326,400 - - Fixed costs 297,840 (1 - (1 - Tax rate 0.4 ) ) $ $ Calculate the target net income for 2018. (Click the icon for help with solving the target net income.) The target net income for 2018 is $ 115,056 in the dit folde and then click Check Answer Question Help R.T. Ko 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. Ko, 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 controler has prepared and presented Mr. Ko with the following data for the current year, 2017: (Click the icon to view the data.) Read the requirements. Requirement 4. What is the breakeven point in revenues for 2018 if the additional $12,240 is spent for advertising? Before we can compute the breakeven point in revenues, we must determine how many bowls must be produced to break even. Use the breakeven point formula we used in requirement 2. Remember, the fixed cost which includes the additional $12,240 for advertising was computed in requirement 3 and we computed the contribution margin per bowl in requirement 2. Complete the calculation. - Fixed costs 297,8401 Contribution margin per bowl 20.40 Bowls needed to break even 14,600 $ Now that we know the number of bowls needed to break even in this requirement, we can compute the breakeven point in revenues, This will be the number of bowls needed to break even multiplied by the sales price per bowl. The breakeven point in revenues for 2018 is $ 496,400 Requirement 5. If the additional $12,240 is spent, what are the required 2018 revenues for 2018 net income to equal 2017 net income? Using the basic formula determined in requirement 1, compute the required number of units first, then the required revenue. First, we can use the basic formula to determine the required number of units. Enter the known amounts. Since we are solving for sales units, an "S" has been entered in for the unknown units figure. The target net income for 2017 you computed in requirement 1 has been entered for you. Revenues - $ 34.00 S. Variable costs - $ 13.60 S - Fixed costs 297,840 = Target net income /(1 - $ 85,680 /(1- Tax rate) 0.4 ) $ Calculate the required number of units. (Click the icon for help with solving the required number of units.) The required number of units is 21,600 The required number of units is 21,600 Now that we know the number of bowls needed to break even in this requirement, we can compute the breakeven point in revenues. This will be the number of bowls needed to break even multiplied by the sales price per bowl. The required revenue is $ 734,400 Requirement 6. At a sales level of 24,000 units, what maximum amount can be spent on advertising if a 2018 net income of $114,306 is desired? Use the basic formula determined in requirement 1. We will use the basic formula again in this requirement. Enter the known amounts. Since we are solving for advertising cost, an "A" has been entered in for the unknown units figure. Recall the calculations for revenues and variable costs. Revenues - - Variable costs $ 326,400 -( ( Fixed costs 285,600 ) Target net income 1 +A )= L li (1 - (1 - Tax rate 0.4 ) ) 816,000 $ UNUT VT W T W WIR VYURT Y urwy w p ur The required revenue is $ 734,400 Requirement 6. At a sales level of 24,000 units, what maximum amount can be spent on advertising if a 2018 net income of $114,306 is desired? Use the basic formula determined in requirement 1. We will use the basic formula again in this requirement. Enter the known amounts. Since we are solving for advertising cost, an "A" has been entered in for the unknown units figure. Recall the calculations for revenues and variable costs. Revenues Variable costs ( Fixed costs - Target net income 1 (1 - Tax rate ) 816,000 - $ 326,400 -( $ 285,600 + A ) = $ 114,306 1 (1 - 0.4 ) Calculate the maximum amount that can be spent on advertising. (Click the icon for help with solving the required number of units.) The maximum amount that can be spent on advertising is $ 13,490 * Data Table col 3.25 8.50 0.85 12.60 Variable cost (per bowl) Direct materials Direct manufacturing labor Variable overhead (manufacturing, marketing, distribution and customer service) Total variable cost per bowl Fixed costs Manufacturing Marketing, distribution, and customer service Total fixed costs Selling price Expected sales, 21,500 units Income tax rate 18,000 166,800 184,800 | $ 28.00 602,000 40%