Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Decision Case 5-1: Party-Time T-shirts sells for parties at the local college. The company completed the first year of operations, and the owner is generally
Decision Case 5-1: Party-Time T-shirts sells for parties at the local college. The company completed the first year of operations, and the owner is generally pleased with operating results as shown by the following income statement: Party Time T-Shirts Income Statement Year Ended December 31, 2015 Net Sales Revenue $350,000 Cost of Goods Sold 210,000 Gross Profit 140,000 Operating Expenses: Selling Expense 40,000 Administrative Expense 25,000 Net Income $75,000 Bill Hildebrand, the owner, is considering how to expand the business. He proposes two ways to increase profits to $100,000 during 2016. a. Hildebrand believes he should advertise more heavily. He believes additional advertising costing $20,000 will increase net sales by 30% and leave administrative expense unchanged. Assume that Cost of Goods sold will remain at the same percentage of net sales as in 2015, so if net sales increase in 2016, Cost of Goods sold will increase proportionately. b. Hildebrand proposes selling higher-margin merchandise, such as party dresses, in addition to the existing product line. An importer can supply a minimum of 1,000 dresses for $40 each; Party-Time can mark these dresses up 100% and sell them for $80. Hildebrand realizes he will have to advertise the new merchandise, and this advertising will cost $5,000. Party-Time can expect to sell only 80% of these dresses during the coming year. Help Hildebrand which plan pursue. Prepare a single-step income statement for 2016 to show the expected net income under each plan
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