In: Accounting
The data below is estimated for ABC Co.’s next year of operations.
Sales $8,000,000 100.00% Variable Costs $3,500,000 43.75% Contribution Margin $4,500,000 56.25% Fixed Costs $3,000,000 Profit $1,500,000
ABC Co. management believes that a $500,000 advertising campaign with Google Analytics will cause sales to increase 30%. Determine the affect on profit and answer questions 12 and 13. If the company buys a new machine for the factory sales will go up an estimated 18% but fixed costs will increase 6%. Determine the affect on profit and answer questions 14.
12. The increase in the contribution margin is: a. $667,000 c. $540,000 b. $881,000 d. None of the above
13. The increase in profit is: a. $960,000 c. $540,000 b. $850,000 d. None of the above
14. The affect on profit for the next year from buying the new machine is: a. $120,000 decrease c. $630,000 increase b. $120,000 increase d. None of the above
The present situation is
Sales |
8,000,000 |
100.00% |
Less: Variable cost |
3,500,000 |
43.75% |
Contribution margin |
4,500,000 |
56.25% |
Less: Fixed cost |
3,000,000 |
|
Profit |
1,500,000 |
1
Now $500,000 advertising campaign with Google Analytics will cause sales to increase 30%.
12. The increase in the contribution margin
Sales (8,000,000*130%) |
10,400,000 |
100.00% |
Less:Variable cost(3,500,000*130%) |
4,550,000 |
43.75% |
Contribution margin |
5,850,000 |
56.25% |
Less:Fixed cost (3,000,000+500,000) |
3,500,000 |
|
Profit |
2,350,000 |
12.
The increase in the contribution margin=None of the above
Working
=5,850,000-4,500,000
=1,350,000
So out of given option none of the above option is correct
13. The increase in profit is =b. $850,000
Working
=2,350,000-1,500,000
=850,000
So out of given option $850,000 (b)option is correct
________________________________________________________________________
2
company buys a new machine for the factory sales will go up an estimated 18% but fixed costs will increase 6%..
New |
|
Sales (8,000,000*118%) |
9,440,000 |
Less: Variable cost(3,500,000*118%) |
4,130,000 |
Contribution margin |
5,310,000 |
Less: Fixed cost (3,000,000)*1.06 |
3,180,000 |
Profit |
2,130,000 |
. The increase in profit is =b. $630,000
Working
=2,130,000-1,500,000
=630,000
So out of given option $630,000 option is correct