Analyzing Operational Changes Operating results for department B of Delta Compan
ID: 2414063 • Letter: A
Question
Analyzing Operational Changes
Operating results for department B of Delta Company during 2016 are as follows:
If department B could maintain the same physical volume of product sold while raising selling prices an average of 15% and making an additional advertising expenditure of $60,000, what would be the effect on the department's net income or net loss? (Ignore income tax in your calculations.)
Use a negative sign with your answer to indicate if the effect increases the company's net loss.
If Department B increased its selling price by 15%, the effect on net income (loss) would be $Answer
.
Sales $550,000 Cost of goods sold 378,000 Gross profit 172,000 Direct expenses 120,000 Common expenses 66,000 Total expenses 186,000 Net loss $(14,000)Explanation / Answer
If department B could maintain the same physical volume of product sold while raising selling prices an average of 15% and making an additional advertising expenditure of $60,000, what would be the effect on the department's net income or net loss?
Particulars
$
$
Sales
632500
Cost of goods sold
378000
Gross profit
254500
Less:
Direct expenses
120000
Common expenses
66000
Total expenses
186000
Advertisement expenses
60000
Total expenses
246000
Net profit
8500
Net income will increase by $22500 (14000+8500)
If Department B increased its selling price by 15%, the effect on net income (loss) would be
Particulars
$
$
Sales
632500
Cost of goods sold
378000
Gross profit
254500
Less:
Direct expenses
120000
Common expenses
66000
Total expenses
186000
Net income
68500
Net income will increase by $82500
Particulars
$
$
Sales
632500
Cost of goods sold
378000
Gross profit
254500
Less:
Direct expenses
120000
Common expenses
66000
Total expenses
186000
Advertisement expenses
60000
Total expenses
246000
Net profit
8500
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