Robert, 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 $9,000 in operating income next year. Even then, we'll have to think long and hard about what the future holds." Robert shares the following information with you, as you ponder different scenarios to help your friend. Selling price Cost for paper, per unit Cost for printing, per unit Cost for film, per unit Staff salaries Other operating costs 1. 2. 3. $6.80 4. 0.75 After thinking about it for a while, you suggest the following possibilities to help him turn things around. 0.90 0.50 47,000 14,380 Lower the selling price by 10% to increase sales volume by 5%. Advertise on the radio and with social media, for a combined cost of $1,000, to increase volume by 10%. 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). Instead of paying the salespeople a fixed salary, move to a commission-based compensation plan (save $19,000 in salary; incur $1.45 per unit sold commission), which should increase sales volume by 20%.
Robert, 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 $9,000 in operating income next year. Even then, we'll have to think long and hard about what the future holds." Robert shares the following information with you, as you ponder different scenarios to help your friend. Selling price Cost for paper, per unit Cost for printing, per unit Cost for film, per unit Staff salaries Other operating costs 1. 2. 3. $6.80 4. 0.75 After thinking about it for a while, you suggest the following possibilities to help him turn things around. 0.90 0.50 47,000 14,380 Lower the selling price by 10% to increase sales volume by 5%. Advertise on the radio and with social media, for a combined cost of $1,000, to increase volume by 10%. 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). Instead of paying the salespeople a fixed salary, move to a commission-based compensation plan (save $19,000 in salary; incur $1.45 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:Robert, 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 $9,000 in operating income next
year. Even then, we'll have to think long and hard about what the future holds."
Robert shares the following information with you, as you ponder different scenarios to help your friend.
Selling price
Cost for paper, per unit
Cost for printing, per unit
Cost for film, per unit
Staff salaries
Other operating costs
1.
2.
3.
$6.80
4.
0.75
After thinking about it for a while, you suggest the following possibilities to help him turn things around.
0.90
0.50
47,000
14,380
Lower the selling price by 10% to increase sales volume by 5%.
Advertise on the radio and with social media, for a combined cost of $1,000, to increase volume by 10%.
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).
Instead of paying the salespeople a fixed salary, move to a commission-based compensation plan (save $19,000 in
salary; incur $1.45 per unit sold commission), which should increase sales volume by 20%.
Transcribed Image Text:(c1)
After these initial discussions, Robert 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 $9,000? If so, which one(s)? (Round answers to 2 decimal places, e.g. 5,125.25.)
Option 1
Option 2
Option 3
After-Tax Operating Income Reach After-Tax Income Goal?
$
LA
LA
$
LA
$
LA
Option 4 $
No
No
No
Yes
<
<
<
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