Question

Analyzing Operational Changes
Operating results for department B of Shaw Company during 2016 are as follows:

Sales $790,000
Cost of goods sold 480,000
Gross profit 310,000
Direct expenses 215,000
Common expenses 123,000
Total expenses 338,000
Net loss $(28,000)
a.If department B could maintain the same physical volume of product sold while raising selling prices an average of 10% and making an additional advertising expenditure of $53,000, 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.

b. If Department B increased its selling price by 10%, the effect on net income (loss) would be____ $

Answer 1

Answer:

Sales $869,000

Cost of goods sold 480,000

Gross profit 389,000

Direct expenses 268,000

Common expenses 123,000

Total expenses 391,000

Net loss $(2,000)

Net loss reduces to $2,000 from $28,000.

There is a benefit of $26,000 gained through increased sales.