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(a) (1)
Profit margin measures the amount of net income earned from each dollar of sales revenue generated by a company. Thus, it shows the relationship between the net income and net sales. It is calculated by using the following formula:
To Prepare: The income statement for 2018, as per K’s and R’s plans adopted by Corporation G.
(2)
To Prepare: The condensed income statement, as per Mr. R’s plan.
(b)
To Explain: The recommendations to Mr. K, and Mr. R.
(c)
To Prepare: The condensed income statement of G Corporation for the year 2018 with the planned changes by Mr. K, and Mr. R.
(d)
To Discuss: The impact that other factors might have.
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Chapter 5 Solutions
Financial Accounting: Tools For Business Decisionmaking, Eighth Edition Wileyplus Blackboard Card
- Bannister Company, an electronics firm, buys circuit boards and manually inserts various electronic devices into the printed circuit board. Bannister sells its products to original equipment manufacturers. Profits for the last two years have been less than expected. Mandy Confer, owner of Bannister, was convinced that her firm needed to adopt a revenue growth and cost reduction strategy to increase overall profits. After a careful review of her firms condition, Mandy realized that the main obstacle for increasing revenues and reducing costs was the high defect rate of her products (a 6 percent reject rate). She was certain that revenues would grow if the defect rate was reduced dramatically. Costs would also decline as there would be fewer rejects and less rework. By decreasing the defect rate, customer satisfaction would increase, causing, in turn, an increase in market share. Mandy also felt that the following actions were needed to help ensure the success of the revenue growth and cost reduction strategy: a. Improve the soldering capabilities by sending employees to an outside course. b. Redesign the insertion process to eliminate some of the common mistakes. c. Improve the procurement process by selecting suppliers that provide higher-quality circuit boards. Required: 1. State the revenue growth and cost reduction strategy using a series of cause-and-effect relationships expressed as if-then statements. 2. Illustrate the strategy using a strategy map. 3. Explain how the revenue growth strategy can be tested. In your explanation, discuss the role of lead and lag measures, targets, and double-loop feedback.arrow_forwardBeneMart, a large national retail chain, is nearing its fiscal year-end. It appears that the company is not going to hit its revenue and net income targets. The company's marketing manager, Ed Mellon, suggests running a promotion selling $50 gift cards for $45. He believes that this would be very popular and would enable the company to meet its targets for revenue and net income. What do you think of this idea?arrow_forwardOne of the major advantages of small businesses is that the investment for running the business is not a major issue this statement is a.Fully false b.Partly false c.Fully true d. Partly true In one of the reputed firm total number of employees were more than 150 and the annual sales in 2019 was around 5 million OMR. In 2020 the company had a huge crisis because of the Corona pandemic which leads them to decrease their number of workers to 55, as a cosuquance their annual sales drop to 723,000 OMR. Based on last year data and according to the Ministry of commerce and industry the business will be categorized under a.None of the given options b.Micro business enterprise c.Small business enterprise d.Medium business enterprise Which of the following Statement(s) is/are Correct? Statement 1: Entrepreneurship is a systematic process of applying creativity and innovation to needs and opportunities in the marketplace Statement2: Entrepreneurship involves using old ideas to create a product…arrow_forward
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- Danna Martin, president of Mays Electronics, was concerned about the end-of-the year marketing report that she had just received. According to Larry Savage, marketing manager, a price decrease for the coming year was again needed to maintain the company's annual sales volume of integrated circuit boards (CBs). This would make a bad situation worse. The current selling price of $18 per unit was producing a $2-per-unit profit—half the customary $4-per-unit profit. Foreign competitors kept reducing their prices. To match the latest reduction would reduce the price from $18 to $14. This would put the price below the cost to produce and sell it. How could these firms sell for such a low price? Determined to find out if there were problems with the company's operations, Danna decided to hire a consultant to evaluate the way in which the CBs were produced and sold. After two weeks, the consultant had identified the following activities and costs: Activities Costs Setting up equipment…arrow_forwardCalculate the economic value of a loyal customer for a company given that the customer purchases, on an average, worth $43 per visit and comes three times a year. The company's gross profit margin is 35 per cent with a customer defection rate of 0.4.arrow_forwardA company normally sells its product for $20 per unit. However, the selling price has fallen to $15 per unit. This company's current FIFO inventory consists of 200 units purchased at $16 per unit. Net realizable value has now fallen to $13 per unit. What is the amount of the lower cost of market adjustment the company must make as a result of this decline in value?arrow_forward
- Totally Tanked, Inc. sells tank tops. The firm is considering making some changes in order to achieve its goal of increasing its profit. If it makes no changes, the company anticipates the following for the coming year: # of tank tops to be sold 3,000,000 Selling price per tank top $20 Variable expense per tank top $8 Fixed expenses for the year $20,000,000 Maria, one of the company’s managers suggests the following: “I think if we cut our price to $17 a tank top, we will increase our sales to 3,700,000 tank tops. I think that will help us achieve our goal”. Question: Prepare a contribution margin income statement (CMIS) for each of the two scenarios below: A) The company makes no changes B)The company implements Maria’s suggestion.arrow_forwardThe Food division of Garcia Company reports the following for the current year. Sales Cost of goods sold Gross profit Expenses Income Garcia wants to achieve at least a 10% profit margin next year. Two alternative strategies are proposed. Strategy 1: Increase advertising expenses by $225,000. The company expects this to increase sales by $660,000. Cost of goods sold will not change. Strategy 2: Develop a more efficient manufacturing process. This will decrease cost of goods sold by $127,000. a. For each strategy, compute the profit margin expected for next year. b. Which strategy should Garcia choose based on expected profit margin? Complete this question by entering your answers in the tabs below. Required 1 $ 4,180,000 2,860,000 1,320,000 1,029,000 $ 291,000 Required Strategy 1 Strategy 2 For each strategy, compute the profit margin expected for next year. Note: Round your answers to one decimal place. Profit margin % %arrow_forwardLee Company produces and sells running shoes. Sales volumes have remained stable in recent years. Financial data relating to the running shoes are as follows: $ $ Selling price 45 Variable cost (35) Fixed cost apportionment (5) (40) Profit 5 Lee Company has recently been approached by a wholesale business that wishes to buy 40,000 pairs each year but has demanded a three-month credit period. Lee Company is concerned that if the demand is accepted, its other customers, who are allowed only a one-month credit, will make similar demands. The current level of sales is 150,000 pairs each year. If the wholesaler order is accepted, 15,000 extra pairs will have to be held in inventories (where inventories are valued at total cost) and trade payables will increase by $ 650,000. The business expects a return of 35 per cent on it net investment. Required: Assess the acceptability of the offer made by the wholesaler to Lee Company on the basis that: All customers will receive a credit period of…arrow_forward
- Cornerstones of Cost Management (Cornerstones Ser...AccountingISBN:9781305970663Author:Don R. Hansen, Maryanne M. MowenPublisher:Cengage LearningExcel Applications for Accounting PrinciplesAccountingISBN:9781111581565Author:Gaylord N. SmithPublisher:Cengage Learning
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