Jacob Garzon operates a photography business that takes photographs of teams and players for various youth...
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Jacob Garzon operates a photography business that takes photographs of teams and players for various youth sports leagues and tournaments. His income statement for March, when he sold 4,000 photographs, is as follows: Sales revenue $ 80,000 2$ 20.00 Less variable expenses Cost of goods sold 20,000 5.00 Salaries and wages expense 8,000 2.00 Postage expense 4,000 1.00 Total variable expenses 32,000 8.00 contribution margin 48,000 2$ 12.00 Less fixed expenses Cost of goods sold 4,600 Advertising 600 Salaries and wages expense 10,000 Insurance expense 1,500 Depreciation expense 1,300 Total fixed expenses 18,000 Operating income $4 30,000 Jacob just got notice from his vendor that the cost of his supplies (COGS) will increase by $1.50 per photograph next month. Also, his insurance premium will incr by $100 per month when he renews the policy next month. Jacob is considering three options for responding to the cost increases. 1. Keep his sales price at $20 and absorb the cost increases. This action will have no effect on sales volume. 2. Pass along the cost increase to his customers by increasing his sales price by $1.50. This price increase would result in a 2% drop in sales volume. 3. Raise his sales price by $2 to capture the cost increase and provide additional revenue against the decrease in sales volume. This price increase would resu a 5% drop in sales volume. Calculate the expected operating income under each of the three scenarios. ROUND YOUR ANSWERS TO WHOLE DOLLARS. DO NOT INCLUDE A $ IN You ANSWERS. Option 1 operating income $ Option 2 operating income $ Option 3 operating income $ Jacob Garzon operates a photography business that takes photographs of teams and players for various youth sports leagues and tournaments. His income statement for March, when he sold 4,000 photographs, is as follows: Sales revenue $ 80,000 2$ 20.00 Less variable expenses Cost of goods sold 20,000 5.00 Salaries and wages expense 8,000 2.00 Postage expense 4,000 1.00 Total variable expenses 32,000 8.00 contribution margin 48,000 2$ 12.00 Less fixed expenses Cost of goods sold 4,600 Advertising 600 Salaries and wages expense 10,000 Insurance expense 1,500 Depreciation expense 1,300 Total fixed expenses 18,000 Operating income $4 30,000 Jacob just got notice from his vendor that the cost of his supplies (COGS) will increase by $1.50 per photograph next month. Also, his insurance premium will incr by $100 per month when he renews the policy next month. Jacob is considering three options for responding to the cost increases. 1. Keep his sales price at $20 and absorb the cost increases. This action will have no effect on sales volume. 2. Pass along the cost increase to his customers by increasing his sales price by $1.50. This price increase would result in a 2% drop in sales volume. 3. Raise his sales price by $2 to capture the cost increase and provide additional revenue against the decrease in sales volume. This price increase would resu a 5% drop in sales volume. Calculate the expected operating income under each of the three scenarios. ROUND YOUR ANSWERS TO WHOLE DOLLARS. DO NOT INCLUDE A $ IN You ANSWERS. Option 1 operating income $ Option 2 operating income $ Option 3 operating income $
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Solution Option 1 Profit No of units sold selling price variable cost per unit ... View the full answer
Related Book For
Financial and Managerial Accounting
ISBN: 978-0132497978
3rd Edition
Authors: Horngren, Harrison, Oliver
Posted Date:
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