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Increase in volume of business and cost projections (LO1). David Sharma sells masks, textiles, and...

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Accounting

  1. Increase in volume of business and cost projections (LO1). David Sharma sells masks, textiles, and other goods imported from Africa. David marks up his purchases by 300% (that is, David he pays $10 for an item, he lists it for $40). Sales for the current year are expected to be $1,500,000. David also incurs fixed costs of $900,000 per year. David believes that these fixed costs are actually step-costs with the step size being $250,000 in revenue.

    Required:

    1. Suppose David anticipates sales of $1,700,000 next year. Calculate his expected profit for the current year and for next year, assuming that he does not change his pricing strategy. Use the contribution margin format.

    2. Suppose David anticipates sales of $2,800,000 next year because he expects African art to come into fashion. Calculate Davids expected profit.

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