b-1. Assume the firm hires Ms. Hood, an efficiency expert, as a consultant. She

Question

b-1. Assume the firm hires Ms. Hood, an efficiency expert, as a consultant. She suggests that by increasing selling and administrative expenses to 14 percent of sales, sales can be increased to 930,300. The extra sales effort will also reduce cost of goods sold to 73 percent of sales (There will be a larger mark-up in prices as a result of more aggressive selling). Amortization expense will remain at $17,000. However, more automobiles will have to be carried in inventory to satisfy customers, and interest expense will go up to $15,600. The firm's tax rate will remain at 30 percent. Compute revised eamings after taxes based on Ms. Hood's suggestions for Carr Auto Wholesalers. (Input all answers as positive values.) CARR AUTO WHOLESALERS Income Statement For the Year Ended December 31, 2015 (Click to select) Cost of goods sold Interest expense Earnings after taxes Sales Selling and administrative expense Taxes Earnings before taxes Amortization expense Click to select) (Click to select) Click to select) b-2. Will her ideas increase or decrease profitability? Increase profitability 19

Explanation / Answer

Question - b1

Question - b2

For answering this question you have to compare 61837.30 with previous profit you got in question - a before this. If this 61837.30 is higher than previous profit, you can select - Option - 1 .

Otherwise, Select - Option - 2

Sales 930300 (-) Cost of goods sold 679119 Gross Margin 251181 (-) Selling and administrative 130242 (-) Amortization expenses 17000 Operating profit ( EBIT) 103939 (-) Interest Expenses 15600 Earnings before taxes 88339 Taxes 26501.7 Earnings after tax 61837.3

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