Question 3 WONDER Ltd maker of quality pens has experienced a steady growth in sales for the past five years. However, increased competition has led the Managing Director of WONDER Ltd to believe that an aggressive advertising campaign will be necessary next year to maintain the company's present growth. To prepare for next advertising campaign, the company's accountant has prepared and presented to the Managing Director the following data for the current year 2020. COST SCHEDULE Variable cost per pen: Direct labour Direct material Variable overhead Total Variable Costs Fixed Cost: Manufacturing Selling Administrative Total Fixed Costs Selling price Expected sales 2020 (20,000units) £ 8.00 3.25 2.50 13.75 Required: 25,000 40,000 70,000 135,000 £25 £500,000 20% Tax Rate The Managing Director has set a target for 2021 at a level of £550,000 (or 22,000 pens) d. What will be the break-even point in pound sales for 2021 if the additional £11,250 is spent? e. If the additional £11,250 is spent on advertising in 2020, what is the required sales level in pound sales to equal 2020 after-tax net income? f. At a sales level 22,000 units, what maximum amount can be spent on advertising if an after-tax net income of £60,000 is desired?
Question 3 WONDER Ltd maker of quality pens has experienced a steady growth in sales for the past five years. However, increased competition has led the Managing Director of WONDER Ltd to believe that an aggressive advertising campaign will be necessary next year to maintain the company's present growth. To prepare for next advertising campaign, the company's accountant has prepared and presented to the Managing Director the following data for the current year 2020. COST SCHEDULE Variable cost per pen: Direct labour Direct material Variable overhead Total Variable Costs Fixed Cost: Manufacturing Selling Administrative Total Fixed Costs Selling price Expected sales 2020 (20,000units) £ 8.00 3.25 2.50 13.75 Required: 25,000 40,000 70,000 135,000 £25 £500,000 20% Tax Rate The Managing Director has set a target for 2021 at a level of £550,000 (or 22,000 pens) d. What will be the break-even point in pound sales for 2021 if the additional £11,250 is spent? e. If the additional £11,250 is spent on advertising in 2020, what is the required sales level in pound sales to equal 2020 after-tax net income? f. At a sales level 22,000 units, what maximum amount can be spent on advertising if an after-tax net income of £60,000 is desired?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Question 3
WONDER Ltd maker of quality pens has experienced a steady growth in sales for the
past five years. However, increased competition has led the Managing Director of
WONDER Ltd to believe that an aggressive advertising campaign will be necessary next
year to maintain the company's present growth.
To prepare for next advertising campaign, the company's accountant has prepared and
presented to the Managing Director the following data for the current year 2020.
COST SCHEDULE
Variable cost per pen:
Direct labour
Direct material
Variable overhead
Total Variable Costs
Fixed Cost:
Manufacturing
Selling
Administrative
Total Fixed Costs
£
8.00
3.25
2.50
13.75
Required:
25,000
40,000
70,000
135,000
Selling price
£25
Expected sales 2020 (20,000units)
£500,000
20%
Tax Rate
The Managing Director has set a target for 2021 at a level of £550,000 (or 22,000 pens)
d. What will be the break-even point in pound sales for 2021 if the additional
£11,250 is spent?
e. If the additional £11,250 is spent on advertising in 2020, what is the required
sales level in pound sales to equal 2020 after-tax net income?
f. At a sales level 22,000 units, what maximum amount can be spent on
advertising if an after-tax net income of £60,000 is desired?
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