Problem 1 (CMA, adapted) J.T. Brooks and Company, a manufacturer of quality handmade walnut bowls, has had a steady growth in sales for the past 3 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: Variable cost (per bowl) Direct materials S 3.00 Direct manufacturing labor 8.00 Variable overhead (manufacturing, marketing. distribution, and customer service) 7.50 Total variable cost per bowl $ 18.50 Fixed costs Manufacturing $ 20,000 Marketing, distribution, and customer service 194,500 Total fixed costs $214,500 Selling price $ 35.00 Expected sales, 22,000 units $770,000 Income tax rate 40% Required: 1. What is the projected net Income for 2020? 2. What is the breakeven point in units for 2020? 3. Mr. Brooks has set the revenue target for 2021 at a level of $873,000 (or 23,000 bowls). He believes an additional marketing cost of $10,300 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 $10,300 is spent and the revenue target is met? What is the breakeven point in revenues for 2021 if the additional $18,300 is spent for advertising? 5. If the additional $10,300 is spent, what are the required 2021 revenues for 2021 net Income to equal 2020 net Income? 6. At a sales level of 23,000 units, what maximum amount can be spent on advertising if a 2021 net Income of $108,450 is desired? Problem 2 Broadpull Rugs is holding a 4-week carpet sale at Tryst's Club, a local warehouse store. Broadpull Rugs plans to sell carpets for $1,300 each. The company will purchase the carpets from a local distributor for $900 each, with the privilege of returning any unsold units for a full refund. Tryst's Club has offered Broadpull Rugs two payment alternatives for the use of space. Option 1:29%% of total revenues earned during the sale period Option 2: A fixed payment of $30,000 for the sale period Assume Broadpull Rugs will incur no other costs. Required: 1. Calculate the breakeven point In units for (a] option 1 and (b) option 2. 2. At what level of revenues will Broadpull Rugs earn the same operating income under either option? a. For what range of unit sales will Broadpull Rugs prefer option 1? b. For what range of unit sales will Broadpull Rugs prefer option 2? 3. Calculate the degree of operating leverage at sales of 80 units for the two rental options. Briefly explain and Interpret your answer to requirement ]