Question

LD. Smith 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 Me Smith, 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. Smith with the following data for the current year, 2017 (Click the icon to view the data) Read the requirements Requirement 1. What is the projected net income for 2017? Using the equation method, select the basic formula used to compute the target net income for 2017 Revenues Variable costs Target net income The target net income for 2017 is 5 1 - Tax rate Enter any number in the edit Belds and then chok Check Answer

Answer 1

1.

Revenues (19,000*$29)	$551,000
Variable costs (19,000*$11.6)	(220,400)
Contribution margin	330,600
Fixed costs	(226,200)
Income before tax	104,400
Income tax@40%	(41,760)
Net income	$62,640

The target net income for 2017 is $62,640.

2.

Sales mix:

Standard = $180,000/240,000 = 0.75

Deluxe = $60,000/240,000 = 0.25

For every 1 deluxe units sold 3 standard units are sold.

Break even points in units = Fixed costs / Contribution margin per unit

Contribution margin per unit:

Standard = $6 * 0.75 = $4.5

Deluxe = $10 * 0.25 = $2.5

Total = $4.5+2.5 = $7

Break even points in units = $1,050,000 / $7 = 150,000 units