Question
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
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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:
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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.
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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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