Question

D.L. Marx 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. Marx, the president, to believe that an aggressive marketing campaign will be nevessary 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. Marx with the following data for the current year, 2014:

Total variable cost per bowl: $12.60
Total fixed costs: $184,800
Selling price: $28.00
Expected sales, 21500 units: $602,000
Income tax rate: %40
What is the projected net income for 2014?

Answer 1

The projected net income for 2014 for D.L. Marx and Company is $145,400.

Step-by-step explanation:

The projected net income for 2014 can be calculated by subtracting the total variable costs and the total fixed costs from the expected sales. To calculate the total variable costs, we multiply the total variable cost per bowl ($12.60) by the expected sales (21,500 units).

This gives us a total variable cost of $271,800. The total fixed costs remain the same at $184,800. Therefore, the total costs for 2014 would be $456,600 ($271,800 + $184,800).

To calculate the projected net income, we subtract the total costs from the expected sales. Thus, the projected net income for 2014 would be $145,400 ($602,000 - $456,600). The profit-maximizing quantity for Doggies Paradise Inc. is 3 units, where MR equals MC just before it starts to exceed it.