J.T. Brooks and Company, a manufacturer of qual- ity 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 cam- paign, the company's controller has prepared and presented Mr. Brooks with the following data for the current year, 2017: Variable cost (per bowl) Direct materials $ 3.00 Direct manufacturing labor Variable overhead (manufacturing, marketing, distribution, and customer service) 8.00 7.50 $ 18.50 Total variable cost per bowl Fixed costs $ 20,000 Manufacturing Marketing, distribution, and customer service Total fixed costs 194,500 $214,500 $ 35.00 $770,000 Selling price Expected sales, 22,000 units Income tax rate 40%
J.T. Brooks and Company, a manufacturer of qual- ity 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 cam- paign, the company's controller has prepared and presented Mr. Brooks with the following data for the current year, 2017: Variable cost (per bowl) Direct materials $ 3.00 Direct manufacturing labor Variable overhead (manufacturing, marketing, distribution, and customer service) 8.00 7.50 $ 18.50 Total variable cost per bowl Fixed costs $ 20,000 Manufacturing Marketing, distribution, and customer service Total fixed costs 194,500 $214,500 $ 35.00 $770,000 Selling price Expected sales, 22,000 units Income tax rate 40%
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Master Budget
A master budget can be defined as an estimation of the revenue earned or expenses incurred over a specified period of time in the future and it is generally prepared on a periodic basis which can be either monthly, quarterly, half-yearly, or annually. It helps a business, an organization, or even an individual to manage the money effectively. A budget also helps in monitoring the performance of the people in the organization and helps in better decision-making.
Sales Budget and Selling
A budget is a financial plan designed by an undertaking for a definite period in future which acts as a major contributor towards enhancing the financial success of the business undertaking. The budget generally takes into account both current and future income and expenses.
Question
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?
Transcribed Image Text:J.T. Brooks and Company, a manufacturer of qual-
ity 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 cam-
paign, the company's controller has prepared and presented Mr. Brooks with the following data for the
current year, 2017:
Variable cost (per bowl)
Direct materials
$ 3.00
Direct manufacturing labor
Variable overhead (manufacturing, marketing,
distribution, and customer service)
8.00
7.50
$ 18.50
Total variable cost per bowl
Fixed costs
$ 20,000
Manufacturing
Marketing, distribution, and customer service
Total fixed costs
194,500
$214,500
$ 35.00
$770,000
Selling price
Expected sales, 22,000 units
Income tax rate
40%
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