Reference no: EM131201467

Delaney and Bonnie 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 Ms. Bonnie, 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 Ms. Bonnie with the following data for the current year, 2015:

Variable cost (per bowl)

Direct materials                                                                       $    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:
Complete the following and show all your computations. All net income amounts are after deducting the applicable income taxes.

1. What is the projected net income for 2015?

2. What is the breakeven point in units for 2015?

3. Ms. Bonnie has set the revenue target for 2016 at a level of $875,000 (or 25,000 bowls). She believes an additional marketing cost of $16,500 for advertising in 2016, with all other costs remaining constant, will be necessary to attain the revenue target. What is the net income for 2016 if the additional $16,500 is spent and the revenue target is met?

4. What is the breakeven point in revenues for 2016 if the additional $16,500 is spent for advertising?

5. If the additional $16,500 is spent, what are the required 2016 revenues for 2016 net income to equal 2015 net income?

6. At a sales level of 25,000 units, what maximum amount can be spent on advertising if a 2016 net income of $108,450 is desired?

7. Prepare a financial accounting income statement for 2015 using the gross margin approach. All variable overhead costs are costs of goods manufactured. Direct Materials beginning inventory = 0; Direct Materials ending inventory = 0; Work in Process beginning inventory = 0; Work in process ending inventory = 0; Finished Goods beginning inventory = 0; Finished Goods ending inventory = 0.