A company is able to implement one of two strategies regarding a particular prod

Question

A company is able to implement one of two strategies regarding a particular product: hire a marketing firm to increase sales 24% or assign a product procurement manager who can reduce material cost for the product by 8%. Currently, the product has sales of $10,900,000. The costs of materials are $8,000,000, labor costs are $1,450,000, and overhead costs are $750,000. What are the effects on net income of the two alternativestrategies? The change in net income after the 24% increase in sales is ______________ (Enter your response as a whole number.)

Explanation / Answer

The change in net income after the 24% increase in sales is 348,000 (1,048,000 - 700,000) Statement showing computations Particulars Existing   Increase sales Reduce mat costs Sales Inc Sales = 10.9M*1.24           10,900,000.00 13,516,000.00        10,900,000.00 Less : Materials Inc Sales = 8M*1.24 Reduce Mat costs = 8m*.92             8,000,000.00     9,920,000.00          7,360,000.00 Less : labour Costs Inc Sales = 1.45M*1.24             1,450,000.00     1,798,000.00          1,450,000.00 Less Overhead Costs                 750,000.00         750,000.00              750,000.00 Income=Sales-Mat - Labour - O/H                 700,000.00     1,048,000.00          1,340,000.00 Note We have assumed overhead costs to be fixed thus are unchanged in absence of information

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