financeJ.T. Brooks 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. 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, 2017: Required: 1. What is the projected net income for 2017? 2. What is the breakeven point in units for 2017? 3. Mr. Brooks has set the revenue target for 2018 at a level of $875,000 (or 25,000 bowls). He believes an additional marketing cost of$16,500 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 $16,500 is spent and the revenue target is met? 4. What is the breakeven point in revenues for 2018 if the additional$16,500 is spent for advertising? 5. If the additional $16,500 is spent, what are the required 2018 revenues for 2018 net income to equal 2017 net income? 6. At a sales level of 25,000 units, what maximum amount can be spent on advertising if a 2018 net income of$108,450 is desired?
$$
\begin{matrix}
\text{Variable cost (per bowl)}\\
\text{Direct materials} & \text{\$ 3.00}\\
\text{Direct manufacturing labor} & \text{8.00}\\
\text{Variable overhead (manufacturing, marketing, Distribution, and customer service)} & \text{7.50}\\
\text{Total variable cost per bowl} & \text{\$ 18.50}\\
\text{Fixing oast}\\
\text{Manufacturing} & \text{\$ 20.000}\\
\text{Marketing, distribution, and customer service} & \text{194.500}\\
\text{Total fixed costs} & \text{\$214.500}\\
\text{Selling Price} & \text{\$ 35.00}\\
\text{Expected sales 22.000 units} & \text{\$ 770.000}\\
\text{Income tax rate} & \text{40\\\%}\\
\end{matrix}
$$ financeMervin Company produces circuit boards that sell for $8 per unit. It currently has capacity to produce 600,000 circuit boards per year, but is selling 550,000 boards per year. Annual costs for the 550,000 circuit boards follow.$
$$
\begin{matrix}
\text{Direct materials } \ldots\ldots\ldots& \text{\$ 825,000}\\
\text{Direct labor}\ldots\ldots\ldots & \text{1,100,000}\\
\text{Overhead}\ldots\ldots\ldots & \text{1,375,000}\\
\text{Selling expenses}\ldots\ldots\ldots & \text{275,000}\\
\text{Administrative expenses}\ldots\ldots\ldots & \text{550,000}\\
\text{Total costs and expenses} \ldots\ldots\ldots& \text{\$4,125,000}\\
\end{matrix}
$$
$An overseas customer has offered to buy 50,000 circuit boards for$6 per unit. The customer is in a different market from Mervin’s regular customers and would not affect regular sales. A study of its costs in anticipation of this additional business reveals the following: Direct materials and direct labor are 100% variable. Twenty percent of overhead is fixed at any production level from 550,000 units to 600,000 units; the remaining 80% of annual overhead costs are variable with respect to volume. Selling expenses are 40% variable with respect to number of units sold, and the other 60% of selling expenses are fixed. There will be an additional $0.20 per unit selling expense for this order. Administrative expenses would increase by a$700 fixed amount. 1. Prepare a three-column comparative income statement that reports the following: a. Annual income without the special order. b. Annual income from the special order. c. Combined annual income from normal business and the new business. 2. Should management accept the order? What nonfinancial factors should Mervin consider? Explain. 3. Assume that the new customer wants to buy 100,000 units instead of 50,000 units—it will only buy 100,000 units or none and will not take a partial order. Without any computations, how does this change your answer in part 2? 9th EditionDaniel F Viele, David H Marshall, Wayne W McManus345 solutions

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