V.L. Wu 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. Wu,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. Wu with the following data for the current year, 2014: Variable cost (per bowl) Direct materials $3.00 Direct manufacturing labor 7.50 Variable overhead (manufacturing, marketing, distribution and customer service) 3.30 Total variable cost per bowl $13.80 Fixed costs Manufacturing $12,000 Marketing, distribution, and customer service 214,800 Total fixed costs $226,800 Selling price $30.00 Expected sales, 19,500 units $585,000 Income tax rate 40% Requirement 3. Mr. Wu has set the revenue target for 2015 at a level of $690,000 (or 23,000 bowls). He believes an additional marketing cost of $19,440 for advertising in 2015, with all other costs remainingconstant, will be necessary to attain the revenue target. What is the net income for 2015 if the additional $19,440 is spent and the revenue target is met? The target net income for 2015?

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter14: Quality And Environmental Cost Management

Section: Chapter Questions

Problem 17E

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V.L. Wu 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.

Wu,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. Wu with the following data for the current year,

2014:

Variable cost (per bowl)

Direct materials

$3.00

Direct manufacturing labor

7.50

Variable overhead (manufacturing, marketing, distribution and customer service)

3.30

Total variable cost per bowl

$13.80

Fixed costs

Manufacturing

$12,000

Marketing, distribution, and customer service

214,800

Total fixed costs

$226,800

Selling price

$30.00

Expected sales, 19,500 units

$585,000

Income tax rate

40%

Requirement 3.

Mr. Wu has set the revenue target for

2015 at a level of $690,000 (or 23,000

bowls). He believes an additional marketing cost of

$19,440 for advertising in

2015, with all other costs remainingconstant, will be necessary to attain the revenue target. What is the net income for

2015 if the additional $19,440 is spent and the revenue target is met?

The target net income for 2015?

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