Answered step by step
Verified Expert Solution
Question
1 Approved Answer
a. 12. Lemon Auto Wholesalers had sales of $1,000,000 last year, and cost of goods sold represented 78 percent of sales. Selling and administrative expenses
a. 12. Lemon Auto Wholesalers had sales of $1,000,000 last year, and cost of goods sold represented 78 percent of sales. Selling and administrative expenses were 12 percent of sales. Depreciation expense was $11,000 and interest expense for the year was $8,000. The firm's tax rate is 30 percent. Compute earnings after taxes. b. Assume the firm hires Ms. Carr, an efficiency expert, as a consultant. She suggests that by increasing selling and administrative expenses to 14 percent of sales, sales can be increased to $1,050,900. The extra sales effort will also reduce cost of goods sold to 74 percent of sales. (There will be a larger markup in prices as a result of more aggressive selling.) Depreciation expense will remain at $11,000. However, more automobiles will have to be carried in inventory to satisfy customers, and interest expense will go up to $15,800. The firm's tax rate will remain at 30 percent. Compute revised earnings after taxes based on Ms. Carrs suggestions for Lemon Auto Wholesalers. Will her ideas increase or decrease profitability
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started