The Rio Claro Company, a manufacturer of quality handmade walnut bowls, has experienced a steady growth in sales for the past five years. However, increased competition has led Mr. Rio, 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.Rio with the following data for the current year, 20X7:

variable Lust (HEI buWI Direct manufacturing labor 8.00 Direct materials 3.25 Variable overhead (manufacturing, marketing distribution, 2.50 Customer service, and administration) Total variable cost 13.75 Fixed cost Manufacturing 25,000 Marketing, distribution and customer service 40,000 Administrative.. 70,000 Total fixed cost 135,000 Selling price per bowl 25.00 Expected revenues, 20X7 (20,000 units). 500,000 Income tax rate 40%