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Lemon Auto Wholesalers had sales of $1,310,000 last year, and cost of goods sold represented 77...

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Finance

Lemon Auto Wholesalers had sales of $1,310,000 last year, andcost of goods sold represented 77 percent of sales. Selling andadministrative expenses were 13 percent of sales. Depreciationexpense was $11,000 and interest expense for the year was $11,000.The firm’s tax rate is 30 percent. a. Compute earnings after taxes.b-1. Assume the firm hires Ms. Carr, an efficiency expert, as aconsultant. She suggests that by increasing selling andadministrative expenses to 15 percent of sales, sales can beincreased to $1,360,600. The extra sales effort will also reducecost of goods sold to 73 percent of sales. (There will be a largermarkup in prices as a result of more aggressive selling.)Depreciation expense will remain at $11,000. However, moreautomobiles will have to be carried in inventory to satisfycustomers, and interest expense will go up to $18,200. The firm’stax rate will remain at 30 percent. Compute revised earnings aftertaxes based on Ms. Carr’s suggestions for Lemon Auto Wholesalers.(Round taxes and earnings after taxes to 1 decimal place.) b-2.Will her ideas increase or decrease profitability? Increaseprofitability Decrease profitability

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3.9 Ratings (577 Votes)

a) Sales $ 13,10,000.0
Cost of goods sold at 77% of sales $ 10,08,700.0
Selling and administrative expenses at 13% of sales $     1,70,300.0
Depreciation expense $        11,000.0
Interest expense $        11,000.0
Income before tax $     1,09,000.0
Tax at 30% $        32,700.0
Net income $        76,300.0
Profit margin = NI/Sales = 5.82%
b-1) Sales $ 13,60,600.0
Cost of goods sold at 73% of sales $     9,93,238.0
Selling and administrative expenses at 15% of sales $     2,04,090.0
Depreciation expense $        11,000.0
Interest expense $        18,200.0
Income before tax $     1,34,072.0
Tax at 30% $        40,221.6
Net income $        93,850.4
Profit margin = NI/Sales = 6.90%
b-2) Yes, her ideas will increase profitability.
The profits increase from $76300.00 to $93,850.40
The profit margin also increases from 5.82% to 6.90%.

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Lemon Auto Wholesalers had sales of $1,310,000 last year, andcost of goods sold represented 77 percent of sales. Selling andadministrative expenses were 13 percent of sales. Depreciationexpense was $11,000 and interest expense for the year was $11,000.The firm’s tax rate is 30 percent. a. Compute earnings after taxes.b-1. Assume the firm hires Ms. Carr, an efficiency expert, as aconsultant. She suggests that by increasing selling andadministrative expenses to 15 percent of sales, sales can beincreased to $1,360,600. The extra sales effort will also reducecost of goods sold to 73 percent of sales. (There will be a largermarkup in prices as a result of more aggressive selling.)Depreciation expense will remain at $11,000. However, moreautomobiles will have to be carried in inventory to satisfycustomers, and interest expense will go up to $18,200. The firm’stax rate will remain at 30 percent. Compute revised earnings aftertaxes based on Ms. Carr’s suggestions for Lemon Auto Wholesalers.(Round taxes and earnings after taxes to 1 decimal place.) b-2.Will her ideas increase or decrease profitability? Increaseprofitability Decrease profitability

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