Question
The Food division of Garcia Company reports the following for the current year. Sales $ 4,120,000 Cost of goods sold 2,740,000 Gross profit 1,380,000 Expenses
The Food division of Garcia Company reports the following for the current year.
Sales | $ 4,120,000 |
---|---|
Cost of goods sold | 2,740,000 |
Gross profit | 1,380,000 |
Expenses | 1,025,000 |
Income | $ 355,000 |
Garcia wants to achieve at least a 10% profit margin next year. Two alternative strategies are proposed. Strategy 1: Increase advertising expenses by $225,000. The company expects this to increase sales by $630,000. Cost of goods sold will not change. Strategy 2: Develop a more efficient manufacturing process. This will decrease cost of goods sold by $139,400. a. For each strategy, compute the profit margin expected for next year. b. Which strategy should Garcia choose based on expected profit margin?
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