Leo, the owner of a local poster shop, comes to you for help. "We've only been breaking even the past two years, and I'm getting very frustrated! I don't know what to do because I feel like I've already tried to improve our processes as much as possible, but we still haven't been able to generate a profit. Do you have any suggestions as to how we can turn things around? I just don't think we can even consider moving forward with this business unless we can earn $10,000 in operating income next year. Even then, we'll have to think long and hard about what the füture holds." Data Analytics Activities Leo shares the following information with you, as you ponder different scenarios to help your friend. Selling price Cost for paper, per unit 2$ 6.95 0.75 Cost for printing, per unit 0.90 Cost for film, per unit 0.50 Staff salaries 45,000.00 Other operating costs 14,040.00 After thinking about it for a while, you suggest the following possibilities to help him turn things around. 1. Lower the selling price by 10% to increase sales volume by 5%. 2. Advertise on the radio and with social media, for a combined cost of $1,000, to increase volume by 10%. 3. Use a more affordable paper on which to print the posters (available for $0.60 per unit), in combination with a less-expensive film to cover the top of the poster (available for $0.40 per unit). 4. Instead of paying the salespeople a fixed salary, move to a commission-based compensation plan (save $20,000 in salary; incur $1.50 per unit sold commission), which should increase sales volume by 20%. Required (Round amounts to the nearest cent.) a. Analyze each of the proposals against the current situation to determine if it will help Leo achieve his profit goal. b. For any options that do meet the goal, or that come close to the goal, discuss the feasibility of the option, recognizing any potential drawbacks that these changes could present for the company. c. After these initial discussions, Leo realizes that he has ignored any possible tax effects thus far. He esti- mates that his business will be subject to a 25% tax rate. Will any of the proposed scenarios allow him to reach an after-tax income goal of $10,000? If so, which one(s)? If not, do you have any other suggestions?

Leo, the owner of a local poster shop, comes to you for help. "We've only been breaking even the past two years, and I'm getting very frustrated! I don't know what to do because I feel like I've already tried to improve our processes as much as possible, but we still haven't been able to generate a profit. Do you have any suggestions as to how we can turn things around? I just don't think we can even consider moving forward with this business unless we can earn $10,000 in operating income next year. Even then, we'll have to think long and hard about what the füture holds." Data Analytics Activities Leo shares the following information with you, as you ponder different scenarios to help your friend. Selling price Cost for paper, per unit 2$ 6.95 0.75 Cost for printing, per unit 0.90 Cost for film, per unit 0.50 Staff salaries 45,000.00 Other operating costs 14,040.00 After thinking about it for a while, you suggest the following possibilities to help him turn things around. 1. Lower the selling price by 10% to increase sales volume by 5%. 2. Advertise on the radio and with social media, for a combined cost of $1,000, to increase volume by 10%. 3. Use a more affordable paper on which to print the posters (available for $0.60 per unit), in combination with a less-expensive film to cover the top of the poster (available for $0.40 per unit). 4. Instead of paying the salespeople a fixed salary, move to a commission-based compensation plan (save $20,000 in salary; incur $1.50 per unit sold commission), which should increase sales volume by 20%. Required (Round amounts to the nearest cent.) a. Analyze each of the proposals against the current situation to determine if it will help Leo achieve his profit goal. b. For any options that do meet the goal, or that come close to the goal, discuss the feasibility of the option, recognizing any potential drawbacks that these changes could present for the company. c. After these initial discussions, Leo realizes that he has ignored any possible tax effects thus far. He esti- mates that his business will be subject to a 25% tax rate. Will any of the proposed scenarios allow him to reach an after-tax income goal of $10,000? If so, which one(s)? If not, do you have any other suggestions?

Principles of Accounting Volume 1

19th Edition

ISBN:9781947172685

Author:OpenStax

Publisher:OpenStax

Chapter11: Long-term Assets

Section: Chapter Questions

Problem 5TP: Your family started a new manufacturing business making outdoor benches for use in parks and outdoor...

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