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J.T. Brooks and Company, a manufacturer of quality handmade walnut bowls, has had a steady growth in sales for the past 5 years. However, increased
J.T. Brooks 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. Brooks, 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. Brooks with the following data for the current year, 2020: (Click the icon to view the data.) Read the requirements. Requirements Requirement 1. What is the projected net income for 2020? Using the equation method, select the basic formula used to compute the target net income for 2020. Revenues Variable costs The target net income for 2020 18 Fixed costs Data table Target net income Variable cost (per bowl) Direct materials Direct manufacturing labor 1 - Tax rate Variable overhead (manufacturing, marketing, distribution and customer service) Total variable cost per bowl Fixed costs $ 3.00 8.00 7.50 $ 18.50 - X Manufacturing 20,000 194,500 Marketing, distribution, and customer service $ 214,500 Total fixed costs Selling price $ 35.00 Expected sales, 22,000 units Income tax rate $ 770,000 40% 1. What is the projected net income for 20207 2. What is the breakeven point in units for 20207 3. Mr. Brooks has set the revenue target for 2021 at a level of $875,000 (or 25,000 bowls). He believes an additional marketing cost of $16,500 for advertising in 2021, with all other costs remaining constant, will be necessary to attain the revenue target. What is the net income for 2021 if the additional $16,500 is spent and the revenue target is met? 4. What is the breakeven point in revenues for 2021 if the additional $16,500 is spent for advertising? 5. If the additional $16,500 is spent, what are the required 2021 revenues for 2021 net income to equal 2020 net income? 6. At a sales level of 25,000 units, what maximum amount can be spent on advertising if a 2021 net income of $108,450 is desired? Print Done
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