(C1) After these initial discussions, David realizes that he has ignored any possible tax effects thus far. He estimates that his business will be subject to a 25% tax rate. Will any of the proposed scenarios allow him to reach an after-tax income goal of $10,000? If so, which one(s)? (Round answers to 2 decimal places, e.g. 5,125.25.) After-Tax Operating Income Reach After-Tax Income Goal? Current Attempt in Progress David, the owner of a local poster shop, comes to you for help. "We've only been breaking even the past two years, and I'm getting very frustrated! I don't know what to do because I feel like I've already tried to improve our processes as much as possible, but we still haven't been able to generate a profit. Do you have any suggestions as to how we can turn things around? I just don't think we can even consider moving forward with this business unless we can earn $10,000 in operating income next year. Even then, we'll have to think long and hard about what the future holds." David shares the following information with you, as you ponder different scenarios to help your friend. Selling price $7.10 Cost for paper, per unit 0.75 Cost for printing, per unit 0.80 Cost for film, per unit 0.50 Staff salaries 44,000 Other operating costs 21,145 After thinking about it for a while, you suggest the following possibilities to help him turn things around. 1. Lower the selling price by 10% to increase sales volume by 5%. 2. Advertise on the radio and with social media, for a combined cost of $1,000, to increase volume by 10%. 3. Use a more affordable paper on which to print the posters (available for $0.60 per unit), in combination with a less-expensive film to cover the top of the poster (available for $0.40 per unit). 4. Instead of paying the salespeople a fixed salary, move to a commission-based compensation plan (save $20,000 in salary: incur $1.50 per unit sold commission), which should increase sales volume by 20%.
(C1) After these initial discussions, David realizes that he has ignored any possible tax effects thus far. He estimates that his business will be subject to a 25% tax rate. Will any of the proposed scenarios allow him to reach an after-tax income goal of $10,000? If so, which one(s)? (Round answers to 2 decimal places, e.g. 5,125.25.) After-Tax Operating Income Reach After-Tax Income Goal? Current Attempt in Progress David, the owner of a local poster shop, comes to you for help. "We've only been breaking even the past two years, and I'm getting very frustrated! I don't know what to do because I feel like I've already tried to improve our processes as much as possible, but we still haven't been able to generate a profit. Do you have any suggestions as to how we can turn things around? I just don't think we can even consider moving forward with this business unless we can earn $10,000 in operating income next year. Even then, we'll have to think long and hard about what the future holds." David shares the following information with you, as you ponder different scenarios to help your friend. Selling price $7.10 Cost for paper, per unit 0.75 Cost for printing, per unit 0.80 Cost for film, per unit 0.50 Staff salaries 44,000 Other operating costs 21,145 After thinking about it for a while, you suggest the following possibilities to help him turn things around. 1. Lower the selling price by 10% to increase sales volume by 5%. 2. Advertise on the radio and with social media, for a combined cost of $1,000, to increase volume by 10%. 3. Use a more affordable paper on which to print the posters (available for $0.60 per unit), in combination with a less-expensive film to cover the top of the poster (available for $0.40 per unit). 4. Instead of paying the salespeople a fixed salary, move to a commission-based compensation plan (save $20,000 in salary: incur $1.50 per unit sold commission), which should increase sales volume by 20%.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
Transcribed Image Text:(C1)
After these initial discussions, David realizes that he has ignored any possible tax effects thus far. He estimates that his business
will be subject to a 25% tax rate. Will any of the proposed scenarios allow him to reach an after-tax income goal of $10,000? If so,
which one(s)? (Round answers to 2 decimal places, e.g. 5,125.25.)
After-Tax Operating Income Reach After-Tax Income Goal?
Transcribed Image Text:Current Attempt in Progress
David, the owner of a local poster shop, comes to you for help. "We've only been breaking even the past two years, and I'm getting very
frustrated! I don't know what to do because I feel like I've already tried to improve our processes as much as possible, but we still
haven't been able to generate a profit. Do you have any suggestions as to how we can turn things around? I just don't think we can even
consider moving forward with this business unless we can earn $10,000 in operating income next year. Even then, we'll have to think
long and hard about what the future holds."
David shares the following information with you, as you ponder different scenarios to help your friend.
Selling price
$7.10
Cost for paper, per unit
0.75
Cost for printing, per unit
0.80
Cost for film, per unit
0.50
Staff salaries
44,000
Other operating costs
21,145
After thinking about it for a while, you suggest the following possibilities to help him turn things around.
1.
Lower the selling price by 10% to increase sales volume by 5%.
2.
Advertise on the radio and with social media, for a combined cost of $1,000, to increase volume by 10%.
3.
Use a more affordable paper on which to print the posters (available for $0.60 per unit), in combination with a less-expensive
film to cover the top of the poster (available for $0.40 per unit).
4.
Instead of paying the salespeople a fixed salary, move to a commission-based compensation plan (save $20,000 in salary:
incur $1.50 per unit sold commission), which should increase sales volume by 20%.
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