The current monthly income statement for JRT, Inc., represents the results of selling 8,000 coffee mugs: Sales (revenue) $56,000 Cost of goods sold (33,000) Gross margin $23,000 S & A expenses (16,000) Income before taxes $ 7,000 Income taxes (@ 30%) (2,100) Net income $ 4,900 Cost of goods sold included fixed manufacturing costs of $5,000, while selling and administrative expenses (“S & A expenses”) included $4,000 of fixed costs. Sales commissions amounting to $0.40 per coffee mug were also included in S & A expenses. 

1. How many coffee mugs would JRT need to sell to earn a monthly net income of $7,000?

 

2. JRT received a special order for 3,000 coffee mugs from the Lyric Opera of Chicago (Lyric). JRT would not have to pay a sales commission on these mugs, but would have to place a special “Lyric” design on each mug at a cost of $0.50 per mug. In addition, the fixed cost of setting up this order would amount to $1,900. If the Lyric agreed to pay only $6.00 per mug, what would be the effect on JRT’s monthly net income if they accepted this order?

Answer rating: 100% (QA)

To answer the questions lets break down the information provided in the income statement Sales revenue 56000 Cost of goods sold 33000 Gross margin 23000 S A expenses 16000 Income before taxes 7000 Inc... View the full answer