6. The president does not want to change the selling price. Instead, he wants to increase the sales commission by $1.50 per unit. Hethinks that this move, combined with some increase in advertising, would increase this year's unit sales by 25%. How much could thepresident increase this year's advertising expense and still earn the same $920,000 net operating income as last year? Feather Friends, Incorporated, distributes a high-quality wooden birdhouse that sells for $80 per unit. Variable expenses are $40.00per unit, and fixed expenses total $160,000 per year. Its operating results for last year were as follows:$ 2,160,0001,080,0001,080,000160,000$ 920,000SalesVariable expensesContribution marginFixed expensesNet operating income

Computation of New variable cost $40 + $1.5 $41.5 Increase in sale units $2160000 / $80 + 25% 33750…

Answered: 6. The president does not want to…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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4. Hughes Cable Systems plans to offer its employees a salary enhancement package that has revenue sharing as its main component. Specifically, the company will set aside I % of total sales for yearend bonuses for all its employees. The sales are expected to be $5 million the first year, $6 million the second year, and amounts increasing by 20% each year for the next 5 years. At an interest rate of 10% per year, what is the equivalent annual worth in years I through 5 of the bonus package?
The ABC Corporation is considering opening an office in a new market area that would allow it to increase its annual sales by $2.6 million. The cost of goods sold is estimated to be 40 percent of sales, and corporate overhead would increase by $304,000, not including the cost of either acquiring or leasing office space. The corporation will have to invest $2.6 million in office furniture, office equipment, and other up-front costs associated with opening the new office before considering the costs of owning or leasing the office space A small office building could be purchased for sole use by the corporation at a total price of $5.3 million, of which $900,000 of the purchase price would represent land value, and $4,4 million would represent building value. The cost of the building would be depreciated over 39 years. The corporation is in a 21 percent tax bracket. An investor is willing to purchase the same building and lease it to the corporation for $570,000 per year for a term of 15…
The ABC Corporation is considering opening an office in a new market area that would allow it to increase its annual sales by $2.6 million. The cost of goods sold is estimated to be 40 percent of sales, and corporate overhead would increase by $304,000, not including the cost of either acquiring or leasing office space. The corporation will have to invest $2.6 million in office furniture, office equipment, and other up-front costs associated with opening the new office before considering the costs of owning or leasing the office space. A small office building could be purchased for sole use by the corporation at a total price of $5.3 million, of which $900,000 of the purchase price would represent land value, and $4.4 million would represent building value. The cost of the building would be depreciated over 39 years. The corporation is in a 21 percent tax bracket. An investor is willing to purchase the same building and lease it to the corporation for $570,000 per year for a term of…
Ll.62.
8. A juice bar is currently doing $292,000 a year in sales revenue. Juice cost is 40% and other variable cost is 25% of sales revenue. Fixed costs are $75,000. (a) Calculate annual operating income before tax. (b) The owner wants to increase the manager's salary by $6,000 a year. Find desired sales revenue and maintain the same level of operating income.
2. The president believes that a $6,700 increase in the monthly advertising budget, combined with an intensified effort by the sales staff, will result in an $84,000 increase in monthly sales. If the president is right, what will be the increase (decrease) in the company’s monthly net operating income?
b-t. Assume the firm hires Ms. Carr, an efficiency expert, as a consultant. She suggests that by increasing selling and administrative expenses to 15 percent of sales, sales can be increased to $1,450,600. The extra sales effort will also reduce cost of goods sold to 73 percent of sales. (There will be a larger markup in prices as a result of more aggressive selling.) Depreciation expense will remain at $10,000. However, more automobiles will have to be carried in Inventory to satisfy customers, and interest expense will go up to $16,800. The firm's tax rate will remain at 30 percent. Compute revised earnings after taxes based on Ms. Carr's suggestions for Lemon Auto Wholesalers. (Round taxes and earnings after taxes to 1 decimal place.) Lemon Auto Wholesalers Income Statement $ $ LA $ $ 100 0 0 0 0.0 TENSONPARA
Your company has been doing well, reaching $1.02 million in earnings, and is considering launching a new product. Designing the new product has already cost $510,000. The company estimates that it will sell 773,000 units per year for $3.05 per unit and variable non-labor costs will be $1.09 per unit. Production will end after year 3. New equipment costing $1.01 million will be required. The equipment will be depreciated to zero using the 7-year MACRS schedule. You plan to sell the equipment for book value at the end of year 3. Your current level of working capital is $302,000. The new product will require the working capital to increase to a level of $387,000 immediately, then to $399,000 in year 1, in year 2 the level will be $341,000, and finally in year 3 the level will return to $302,000. Your tax rate is 21%. The discount rate for this project is 9.7%. Do the capital budgeting analysis for this project and calculate its NPV. Note: Assume that the equipment is put into use in year…
A recently hired chief executive officer wants to reduce future production costs to improve the company's earnings, thereby increasing the value of the company's stock. The plan is to invest $86,000 now and $66,000 in each of the next 5 years to improve productivity. By how much must annual costs decrease in years 6 through 15 to recover the investment plus a return of 12% per year? The annual cost decreases by $
Kindly, answer the following: a. The sales manager feels that an P110,000 increase in monthly advertising budget, combined with an intensified effort by the sales staff will result in a P840,000 increase in monthly sales. Considering these changes, what will be the company’s increase or decrease in profit? b. The president is convinced that a 10% reduction in the selling price, combined with an increase of P35,000 in the monthly advertising budget, will cause units sales to double. Considering these changes, how much is the company’s expected profit? c. A new package for the product is being considered to induce sales. This package costs P0.60 per unit. Considering the new package cost, how many units would have to be sold each month to earn a profit ofP90,000?
The ABC Corporation is considering opening an office in a new market area that would allow it to increase its annual sales by $2.5 million. The cost of goods sold is estimated to be 40 percent of sales, and corporate overhead would increase by $303,000, not including the cost of either acquiring or leasing office space. The corporation will have to invest $2.5 million in office furniture, office equipment, and other up-front costs associated with opening the new office before considering the costs of owning or leasing the office space. A small office building could be purchased for sole use by the corporation at a total price of $5.1 million, of which $900,000 of the purchase price would represent land value, and $4.2 million would represent building value. The cost of the building would be depreciated over 39 years. The corporation is in a 21 percent tax bracket. An investor is willing to purchase the same building and lease it to the corporation for $540,000 per year for a term of…
2. Margetis Inc. carries an average inventory of $750,000. Its annual sales are $10 million, its cost of goods sold is 75% of annual sales, and its average collection period is twice as long as its inventory conversion period. The firm buys on terms of net 30 days, and it pays on time. Its new CFO wants to decrease the cash conversion cycle by 10 days, based on a 365-day year. He believes he can reduce the average inventory to $647,260 with no effect on sales. By how much must the firm also reduce its accounts receivable to meet its goal in the reduction of the cash conversion cycle?

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