The local hardware store is considering a promotion in which it would sell preselected tools for...
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The local hardware store is considering a promotion in which it would sell preselected tools for $5 each. The managers are hoping that young adults will come into the store and equip themselves with "the basics," allowing the store's service-oriented staff to teach them how to use each tool. However, the company's profit goals require a contribution margin ratio of at least 60% before any new promotions are approved. The company's current variable cost per unit for these tools is $2.50, and its tax rate is 30%. *Required a. Will the promotion be approved under the current conditions? Explain. b. What is the most this hardware store can pay per unit for these tools if it wants to move forward with this promotion? c. If the promotion is going to cost $1,920 in fixed costs, at what level of sales dollars will the hardware store break even on this deal? At what level of sales dollars will the store earn a target operating income of $4,980 on this deal? What will after-tax profit be at this level of operating income? d. Typical sales for these types of tools range from $500 to $2,000 in a comparable time period. Given your analysis thus far, does this promotion seem like a wise move? Explain. The local hardware store is considering a promotion in which it would sell preselected tools for $5 each. The managers are hoping that young adults will come into the store and equip themselves with "the basics," allowing the store's service-oriented staff to teach them how to use each tool. However, the company's profit goals require a contribution margin ratio of at least 60% before any new promotions are approved. The company's current variable cost per unit for these tools is $2.50, and its tax rate is 30%. *Required a. Will the promotion be approved under the current conditions? Explain. b. What is the most this hardware store can pay per unit for these tools if it wants to move forward with this promotion? c. If the promotion is going to cost $1,920 in fixed costs, at what level of sales dollars will the hardware store break even on this deal? At what level of sales dollars will the store earn a target operating income of $4,980 on this deal? What will after-tax profit be at this level of operating income? d. Typical sales for these types of tools range from $500 to $2,000 in a comparable time period. Given your analysis thus far, does this promotion seem like a wise move? Explain.
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Lets address each of the required questions step by step a Will the promotion be approved under the current conditions Explain To determine if the promotion will be approved we need to calculate the c... View the full answer
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