Question

Analyzing Operational Changes
Operating results for department B of Shaw Company during 2016 are as follows:

Sales		$760,000
Cost of goods sold		480,000
Gross profit		280,000
Direct expenses		215,000
Common expenses		123,000
Total expenses		338,000
Net loss		$(58,000)

If department B could maintain the same physical volume of product sold while raising selling prices an average of 10% and making an additional advertising expenditure of $30,000, what would be the effect on the department's net income or net loss? (Ignore income tax in your calculations.)

Use a negative sign with your answer to indicate if the effect increases the company's net loss.

If Department B increased its selling price by 10%, the effect on net income (loss) would be $Answer

Answer 1

	Amount($)
Increase in sales($760,000*10%)	76,000
Advertisement expenditure	-30,000
Net change in income( increse in profit)	46,000