R. A. Ro and 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 Ro, 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 Ro with the following data for the current year, 2016:
1. What is the projected net income for 2016?
2. What is the breakeven point in units for 2016?
3. Ro has set the revenue target for 2017 at a level of $660,000 (or 22,000 bowls). He believes an additional marketing cost of $13,500 for advertising in 2017, with all other costs remaining constant, will be necessary to attain the revenue target. What will be the net income for 2017 if the additional $13,500 is spent and the revenue target is met?
4. What will be the breakeven point in revenues for 2017 if the additional $13,500 is spent for advertising?
5. If the additional $13,500 is spent for advertising in 2017, what is the required 2017 revenue for 2017’s net income to equal 2016’s net income?
6. At a sales level of 22,000 units, what maximum amount can be spent on advertising if a 2017 net income of $72,000 is desired?
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