The data below is estimated for ABC Co.’s next year of operations. Sales $8,000,
ID: 2529612 • Letter: T
Question
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
Explanation / Answer
Answer:
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
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
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