5. As a result of a more intense effort by sales people, sales are increased by 10%; operating assets remain unchanged. 6. At the beginning of the year, obsolete inventory carried on the books at a cost of $18,000 is scrapped and written off as a loss, thereby lowering net operating income. 7. At the beginning of the year, the company uses $178,000 of cash (received on accounts receivable) to repurchase some of its common stock.

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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The contribution format income statement for Huerra Company for last year is given below:

 

  Total Unit
Sales $ 1,008,000 $ 50.40
Variable expenses 604,800 30.24
Contribution margin 403,200 20.16
Fixed expenses 323,200 16.16
Net operating income 80,000 4.00
Income taxes @ 40% 32,000 1.60
Net income $ 48,000 $ 2.40

 

The company had average operating assets of $499,000 during the year.

 

Required:

5. As a result of a more intense effort by sales people, sales are increased by 10%; operating assets remain unchanged.

6. At the beginning of the year, obsolete inventory carried on the books at a cost of $18,000 is scrapped and written off as a loss, thereby lowering net operating income.

7. At the beginning of the year, the company uses $178,000 of cash (received on accounts receivable) to repurchase some of its common stock.

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