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10:40 1+ ((0)) Il.| 242 B/S 1 85 Doc1 - Read-only O . . . Blacks Industrial Ltd plans to grow its net income before tax by 20% per year. The company has several products in regular demand which generate the following performance each year. EOOO Sales revenue 4,000 Variable costs 1,000 Attributable fixed costs 500 Attributable advertising 400 Blacks also introduces more exciting products regularly with short lifecycles. The forecasts for the two products currently in production are: 2019 2020 2021 2022 2023 2024 2025 E000 EO00 EOOO EOO E000 EO00 Galitron Sales 500 300 200 100 V costs 125 100 100 80 Attributable fixed costs 20 20 20 40 100 Advertising 100 85 60 20 Hexicon Sales 600 900 1,400 1,700 1,600 1400 800 V costs 70 180 480 600 400 400 500 Attributable fixed costs 30 30 30 30 30 30 30 Advertising 160 180 100 100 150 150 40 The company's common fixed costs are $1,400,000 in 2019 and expected to increase by 2% per year. A new product the "Janitron" has been developed and tested and is due to be launched in 2020. It has the following expenditure information: Attributable Development Costs for Janitron of $1,000,000 were incurred over several years up to 2018. These were included in research and development expenses and were written off by including them in common fixed costs in the years in which they were incurred. Pre-product launch expenditure for Janitron of $200,000 will be incurred in 2019. It is expected that Janitron will not trade in 2026 and there will be disposal expenses of E350,000 in that year. Janitron's estimated costs per year are shown below: Janitron 2020 2021 2022 2023 2024 2025 EOOO ED00 E000 EO00 E000 EOOO V costs as % sales 40% 50% 50% 50% 30% 40% Attributable fixed costs 40 40 40 40 40 200 200 150 150 Advertising 100 100 Blacks Industrial Lid are considering their future strategy in the light of the above forecasts and wish to know what sales of Janitron would be needed for the company to meet its target of 20% increase in net income before tax each year based on the previous year's net income before tax and starting from 2019. Required: a) Produce a complete long-term budget for the years 2019 to 2025 incorporating all the revenues and costs mentioned above and calculate the sales of Janitron which would be needed to meet the net income before tax requirement mentioned above, assuming that the other product forecasts are regarded as reliable. (12 marks) Comment on the sales figures you have calculated in (a) above and consider whether they are likely to match the marketing strategy for Janitron (assuming that the growth and decline patterns of previous products are typical). Discuss possible additional information which is needed to create a realistic long-term plan. (4 marks) C) Show the product life cycle budget for Janitron based on the estimated sales from part (a) and comment on the performance of the product. (4 marks) O O
