I need steps to show how to do this problem Christy enterprises reports the year
ID: 2385920 • Letter: I
Question
I need steps to show how to do this problemChristy enterprises reports the year-end information from 2011 as follows:
Sales (100,000 units).................................................................$500,000
Less: Cost of goods sold.............................................................300,000
Gross profit..................................................................................200,000
Operating expenses (includes $20,000 of Depreciation)............120,000
Net Income...................................................................................$80,000
Christy is developing the 2012 budget. In 2012 the company would like to increase selling prices by 10%, and as a result expects a decrease in sales volume of 5%. Cost of goods sold as a percentage of sales is expected to increase to 62%. Other than depreciation, all operating costs are variable.
What is net income for 2012?
Explanation / Answer
Formula / Equation: [Simple rate of return = (Incremental revenues - Incremental expenses, including depreciation = Incremental net operating income) / Initial investment*] *The investment should be reduced by any salvage from the sale of old equipment. Or, if a cost reduction project is involved, formula / Equation becomes: [Simple rate of return = (Cost savings - Depreciation on new equipment) / Initial investment*] *The investment should be reduced by any salvage from the sale of old equipment