Sheryl Sandberg and Mark Zuckerberg of Facebook are introduced in the chapter’s opening feature. Assume that they are considering two options. Plan A. Facebook would begin selling access to a premium version of its website. The new online customers would use their credit cards. The company has the capability of selling the premium service with no additional investment in hardware or software. Annual credit sales are expected to increase by $250,000. Costs associated with Plan A: Additional wages related to these new sales are $135,500; credit card fees will be 4.75% of sales; and additional recordkeeping costs will be 6% of sales. Premium service sales will reduce advertising revenues for Facebook by $8,750 annually because some customers will now only use the premium service. Plan B. The company would begin selling Facebook merchandise. It would make additional annual credit sales of $500,000. Costs associated with Plan B: Cost of these new sales is $375,000; additional recordkeeping and shipping costs will be 4% of sales; and uncollectible accounts will be 6.2% of sales. Required 1. Compute the additional annual net income or loss expected under (a) Plan A and (b) Plan B. 2. Should the company pursue either plan? Discuss both the financial and nonfinancial factors relevant to this decision.
Sheryl Sandberg and Mark Zuckerberg of Facebook are introduced in the chapter’s opening
feature. Assume that they are considering two options.
Plan A. Facebook would begin selling access to a premium version of its website. The new online customers
would use their credit cards. The company has the capability of selling the premium service with
no additional investment in hardware or software. Annual credit sales are expected to increase by
$250,000.
Costs associated with Plan A: Additional wages related to these new sales are $135,500; credit card
fees will be 4.75% of sales; and additional recordkeeping costs will be 6% of sales. Premium service sales
will reduce advertising revenues for Facebook by $8,750 annually because some customers will now only
use the premium service.
Plan B. The company would begin selling Facebook merchandise. It would make additional annual credit
sales of $500,000.
Costs associated with Plan B: Cost of these new sales is $375,000; additional recordkeeping and shipping
costs will be 4% of sales; and uncollectible accounts will be 6.2% of sales.
Required
1. Compute the additional annual net income or loss expected under (a) Plan A and (b) Plan B.
2. Should the company pursue either plan? Discuss both the financial and nonfinancial factors relevant
to this decision.
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