Answered: Complete 3 separate pro-forma income…

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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Question

Complete 3 separate pro-forma income statements for 3 of the prices that Calvin is considering (i.e., $40, $25, & $15). Assume that he sells all 500 blocks, expects his advertising expenses to be $5000, and uses the Danville fulfillment house to fulfill orders and distribute the product. Based on these assumptions, at which of the price(s) would he have a positive net income?

Transcribed Image Text:**Exhibit 1** **A Better Yoga Block: Shanti Creek Yoga Products** **Supplier Options** | | Shenzhen Eversuccess | Wood Creations | |----------------------|----------------------|----------------| | **Unit cost** | $3.50 | $8.25 | | **Import, tariffs, customs** | $3.50 (estimate) | | | **Total unit cost** | $7.00 | $8.25 | | **Notes** | Price is FOB Shanghai, 100% due in advance. 30-day delivery. | Price includes delivery to warehouse. 100% due in advance on first order, net 30 on subsequent orders. 10-day delivery. | *Source: All exhibits were created by author.* **Exhibit 2** **A Better Yoga Block: Shanti Creek Yoga Products** **Facebook Advertising Test** | **Test price** | **Number of visitors** | **“Purchases”** | |----------------|------------------------|-----------------| | $50 | 83 | 4 | | $40 | 81 | 7 | | $30 | 82 | 9 | | $25 | 81 | 11 | | $15 | 83 | 15 | **Notes:** Advertising expenditure per day: $100. Each day, price on target website was changed. The advertisement did not mention price and did not change. The ad was targeted to all Facebook users with at least a college education who expressed an interest in yoga in their profile pages. “Purchases” represents all clicks on the “Buy now” button that day. Differing “visitor” numbers from day to day represent typical variations in the cost per click charged by Facebook.

Expert Solution

Step 1

In the given problem, Danville fulfillment house details are not mentioned.
So, solving with the set of available information.
There are two different suppliers. showing a comparative approach of net income calculation.

Proforma Income Statement (If Price is $40):

Particulars	Working	Amount if Supplier Shenzhen is selected	Amount if Supplier wood creation is selected
Sales	500 blocks * $40	$25,000	$25,000
Less:
Advertisement Expenses		($5000)	($5000)
Supplier Shenzhen Ever success (30-day delivery)	500 blocks * $7.00	($3,500)	-
Supplier Wood Creation (10-day delivery)	500 blocks * $8.25	-	($4,125)
Net Income		$16,500	$15,875