The Food division of Garcia Company reports the following for the current year. Sales $ 4,210,000 Cost of goods sold 2,870,000 Gross profit 1,340,000 1,175,000 Expenses Income $ 165,000 Garcia wants to achieve at least a 10% profit margin next year. Two alternative strategies are proposed. Strategy 1: Increase advertising expenses by $225,000. The company expects this to increase sales by $670,000. Cost of goods sold will not change Strategy 2: Develop a more efficient manufacturing process. This will decrease cost of goods sold by $129,700. For each strategy, compute the profit margin expected for next year.
The Food division of Garcia Company reports the following for the current year. Sales $ 4,210,000 Cost of goods sold 2,870,000 Gross profit 1,340,000 1,175,000 Expenses Income $ 165,000 Garcia wants to achieve at least a 10% profit margin next year. Two alternative strategies are proposed. Strategy 1: Increase advertising expenses by $225,000. The company expects this to increase sales by $670,000. Cost of goods sold will not change Strategy 2: Develop a more efficient manufacturing process. This will decrease cost of goods sold by $129,700. For each strategy, compute the profit margin expected for next year.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:The Food division of Garcia Company reports the following for the current year.
$ 4,210,000
Sales
Cost of goods sold 2,870,000
Gross profit
1,340,000
Expenses
1,175,000
Income
$ 165,000
Garcia wants to achieve at least a 10% profit margin next year. Two alternative strategies are proposed.
Strategy 1: Increase advertising expenses by $225,000. The company expects this to increase sales by $670,000. Cost of goods sold will not change.
Strategy 2: Develop a more efficient manufacturing process. This will decrease cost of goods sold by $129,700.
For each strategy, compute the profit margin expected for next year.
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