SURVEY OF ACCOUNTING(LL)>CUSTOM PKG.<
SURVEY OF ACCOUNTING(LL)>CUSTOM PKG.<
5th Edition
ISBN: 9781264010653
Author: Edmonds
Publisher: MCGRAW-HILL HIGHER EDUCATION
Question
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Chapter 11, Problem 2ATC

a)

To determine

Determine the expected net income when 500 people buy the ticket

a)

Expert Solution
Check Mark

Explanation of Solution

Given information:

The sale price of ticket is $28. Fee is $10,000 fixed.

The formula to calculate the net income:

Net income=RevenueCost

Compute the net income:

Net income=RevenueCost=$14,000$10,000=$4,000

Hence, the net income is $4,000.

The price of the speaker will remain same irrespective of fixed fee or fee of $20 per ticket sold.

b)1.

To determine

Determine the net income and percentage change in net income if the sale of tickets is 10% higher than expected

b)1.

Expert Solution
Check Mark

Explanation of Solution

Given information:

Refer above part for net income:

Compute the net income:

SURVEY OF ACCOUNTING(LL)>CUSTOM PKG.<, Chapter 11, Problem 2ATC , additional homework tip  1

The net income is $5,400.

Compute the percentage growth in net income:

Percentage change in net income=Current year incomeBase year incomeBase year income=$5,400$4,000$4,000=35%

Hence, the percentage growth in net income is 35%.

2.

To determine

Determine the net income and percentage change in net income if the sale of tickets is 10% lower than expected and the fixed fee is $10,000.

2.

Expert Solution
Check Mark

Explanation of Solution

Given information:

Refer part a) for net income:

Compute the net income:

Excel spread sheet:

SURVEY OF ACCOUNTING(LL)>CUSTOM PKG.<, Chapter 11, Problem 2ATC , additional homework tip  2

Excel workings:

SURVEY OF ACCOUNTING(LL)>CUSTOM PKG.<, Chapter 11, Problem 2ATC , additional homework tip  3

The net income is $2,600.

Compute the percentage growth in net income:

Percentage change in net income=Base year incomeCurrent year incomeBase year income=$4,000$2,600$4,000=35%

Hence, the percentage growth in net income is 35%.

3.

To determine

Determine the net income and percentage change in net income if School P pays Person L $20 per ticket sold. The sale of tickets is 10% higher than expected.

3.

Expert Solution
Check Mark

Explanation of Solution

Given information:

Refer part a) for net income:

Compute the net income:

Excel spread sheet:

SURVEY OF ACCOUNTING(LL)>CUSTOM PKG.<, Chapter 11, Problem 2ATC , additional homework tip  4

The net income is $4,400.

Excel workings:

SURVEY OF ACCOUNTING(LL)>CUSTOM PKG.<, Chapter 11, Problem 2ATC , additional homework tip  5

Compute the percentage growth in net income:

Percentage change in net income=Current year incomeBase year incomeBase year income=$4,400$4,000$4,000=10%

Hence, the percentage growth in net income is 10%.

4)

To determine

Determine the net income and percentage change in net income if School P pays Person L $20 per ticket sold and the sale of tickets is 10% lower than expected.

4)

Expert Solution
Check Mark

Explanation of Solution

Given information:

Refer part a) for net income:

Compute the net income:

Excel spread sheet:

SURVEY OF ACCOUNTING(LL)>CUSTOM PKG.<, Chapter 11, Problem 2ATC , additional homework tip  6

The net income is $3,600.

Excel workings:

SURVEY OF ACCOUNTING(LL)>CUSTOM PKG.<, Chapter 11, Problem 2ATC , additional homework tip  7

Compute the percentage growth in net income:

Percentage change in net income=Current year incomeBase year incomeBase year income=$3,600$4,000$4,000=10%

Hence, the percentage growth in net income is 10%.

c)

To determine

Discuss the discrepancies if any arises on the computation presented at the board by the spokesperson and by the other groups.

c)

Expert Solution
Check Mark

Explanation of Solution

There are no discrepancies in the computation presented at the board by the spokesperson and by the other groups.

d)1.

To determine

The kind of cost structure produces the greater growth potential in the profitability of the company.

d)1.

Expert Solution
Check Mark

Explanation of Solution

The fixed cost structure produces the higher growth potential in company’s profitability.

This is because of operating leverage.

2.

To determine

The type of cost structure produces the higher risk of company’s declining profitability.

2.

Expert Solution
Check Mark

Explanation of Solution

The fixed cost structure produces the higher risk of company’s declining profitability.

This is because of operating leverage.

3.

To determine

The circumstances under which the company pursue to establish a fixed cost structure

3.

Expert Solution
Check Mark

Explanation of Solution

The circumstances where the sales of the company expected to raise are where the fixed cost structure is established.

4.

To determine

The circumstances under which the company pursues to establish a variable cost structure

4.

Expert Solution
Check Mark

Explanation of Solution

The circumstances where the sales of the company expected to drop are where the variable cost structure is established.

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