The Food division of Garcia Company reports the following for the current year. Sales $ 4,270,000 Cost of goods sold 2,890,000 Gross profit 1,380,000 Expenses 1,101,000 Income $ 279,000
The Food division of Garcia Company reports the following for the current year. Sales $ 4,270,000 Cost of goods sold 2,890,000 Gross profit 1,380,000 Expenses 1,101,000 Income $ 279,000
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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The Food division of Garcia Company reports the following for the current year.
| Sales | $ 4,270,000 |
|---|---|
| Cost of goods sold | 2,890,000 |
| Gross profit | 1,380,000 |
| Expenses | 1,101,000 |
| Income | $ 279,000 |
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 $690,000. Cost of goods sold will not change.
Strategy 2: Develop a more efficient manufacturing process. This will decrease cost of goods sold by $148,000.
a. For each strategy, compute the profit margin expected for next year.
b. Which strategy should Garcia choose based on expected profit margin?
Transcribed Image Text:Required 1 Required 2
For each strategy, compute the profit margin expected for next year. (Round your answers to one decimal place.)
Strategy 1
Strategy 2
Profit margin
%
Transcribed Image Text:Required 1 Required 2
Which strategy should Garcia choose based on expected profit margin?
Which strategy should Garcia choose based on expected profit margin?
Strategy 2
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