Question

Portal Enterprises is investigating potential impacts of changing its discount policy. The proposed change would increase...

Portal Enterprises is investigating potential impacts of changing its discount policy. The proposed change would increase the sales discount for customers by 5%, but it is expected that the company would see an overall increase in net sales of 8%. The variable and fixed costs for the company, obviously, would remain constant. The CEO of the company would like for you to provide an analysis of what the new operating profit would be if this change were to occur. The current information for the company is:

Net sales after discount

$500,000

Variable costs

$130,000

Contribution Margin

$370,000

Fixed Costs

$85,000

Operating Profit

$285,000

complete the following table, to be able to explain to the CEO what the operating profit would be if the proposed change is implemented:

Net sales after discount

Variable costs

Contribution Margin

Fixed Costs

Operating Profit
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Homework Answers

Answer #1
Current Scenario Proposed Change
Net sales after discount $500,000 $513000
Variable costs $130,000 $130000
Contribution Margin $370,000 $383000
Fixed Costs $85,000 $85000
Operating Profit $285,000 $298000
Net Sales After discount under Proposed Change.
Current Sales= 500000
Increase in sales= 8% 40000
New Sales 540000
Increase in Discount= 5% 27000
Net Sales After Discount under Proposed Change 513000
Note-
Best effort have been made to answer the question correctly, in case of any discrepencies kindly comment and i will try to resolve it as soon as possible.
Please provide positive feedback.
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