L.D. 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 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. Revenues Variable costs Fixed costs Target net income 1 - Tax rate The target net income for 2017 is Requirement 2. What is the breakeven point in units for 2017? Determine the formula that is used to compute how many bowls are needed to break even, then compute the number of bowls needed. (Enter applicable values to the nearest cent, $X.XX.) (1) (2) Bowls needed to break even Requirement 3. Mr. Ko has set the revenue target for 2018 at a level of $728,500 (or 23,500 bowls). He believes an additional marketing cost of $52,700 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 $52,700 is spent and the revenue target is met? The target net income for 2018 is $ Requirement 4. What is the breakeven point in revenues for 2018 if the additional $52,700 is spent for advertising? (Do not round any of your calculations.) The breakeven point in revenues for 2018 is $ Requirement 5. If the additional $52,700 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. (Do not round any of your calculations.) The required number of units is The required revenue is $ Requirement 6. At a sales level of 23,500 units, what maximum amount can be spent on advertising if a 2018 net income of $83,880 is desired? (Do not round any of your calculations.) Use the basic formula determined in requirement 1. The maximum amount that can be spent on advertising is $ 1: Data Table Variable cost (per bowl) Direct materials $ 3.25 7.50 Direct manufacturing labor Variable overhead (manufacturing, marketing, distribution and customer service) 4.75 $ 15.50 Total variable cost per bowl Fixed costs Manufacturing $ 14,000 156,500 Marketing, distribution, and customer service $ 170,500 Total fixed costs $ 31.00 Selling price Expected sales, 22,000 units $ 682,000 Income tax rate 40% 2: Requirements 1. 2. 3. What is the projected net income for 2017? What is the breakeven point in units for 2017? Mr. Ko has set the revenue target for 2018 at a level of $728,500 (or 23,500 bowls). He believes an additional marketing cost of $52,700 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 $52,700 is spent and the revenue target is met? What is the breakeven point in revenues for 2018 if the additional $52,700 is spent for advertising? If the additional $52,700 is spent, what are the required 2018 revenues for 2018 net income to equal 2017 net income? At a sales level of 23,500 units, what maximum amount can be spent on advertising if a 2018 net income of $83,880 is desired? 4. 5. 6. (1) O 0 1 - Tax rate Contribution margin per bowl O Fixed costs O Revenue per bowl Variable costs per bowl Target net income O Tax rate Total revenues (2) O O 1 - Tax rate O Contribution margin per bowl O Fixed costs O Revenue per bowl Variable costs per bowl Target net income O Tax rate Total revenues
