Operating results for department B of Delta Company during 2016 are as follows:

Question

Operating results for department B of Delta Company during 2016 are as follows: Sales $540,000 Cost of goods sold 378,000 Gross profit 162,000 Direct expenses 120,000 Common expenses 66,000 Total expenses 186,000 Net loss $(24,000) 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 $45,000, 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 $

Explanation / Answer

If Department B increases its selling price by 15%, then the net effect = ($540,000 x 15%) - $45,000

...............................................................................................................= $36,000

Net Income Would increase by $36,000

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