Question

sheryl sandberg and mark zuckerberg of facebook are introduced in the chapter opening feature. assume that they are considering two option.

PLAN A Facebook would begin selling acmes to a premium version of its website .the new online customers would use the credit cards. the company has the capability of selling the premium device with no additional investment in hardware or software. annual credit sales are expected to increase by $ 250,000.

Cost associated with plan A: Additional wages related to these new sales are $135,500; credit card fees will be 4.75% of sales; and additional record keeping costs will be 6%of sales. Premium service sales will reduce advertising revenues for Facebook by $8,750 annually because some customers will now only use the premium service.

PLAN B

The company would begin selling facebook merchandise. it would make additional annual credit sales of $500,000.

Costs associated with plan B: Cost of these new sales is $375,000; additional record keeping and shipping costs will be 4% of sales; and uncollectible accounts will be 6.2% of sales.

Required:

1.Compute the additional annual net income or loss expected under plan a and plan b . check additional net income $74,000

2 should the company purse either plan? Discuss both the financial and non financial factors relevant to this decision.

Answer 1

1.Compute the additional annual net income or loss expected under plan a and plan b . check additional net income $74,000

2 should the company purse either plan? Discuss both the financial and non financial factors relevant to this decision.

Refer to the below images for more detailed solution with explanation.

x : income cory loss compute expected the under additional annual net plan a cs plan b. Reajoiffement a Added C Net income (ov) loss under plan" - Amount $ 236000 (135500) particolars Increased sales Less :- Additional expense (wage) credit card fees [1250000 x 4.75+) Recold keeping [1250000 & 6-10] Lost advertising revenue (11875) (15000) (8750) $78875 Additional net income (loss) - b) Amoont Added a net income (ory loss under plan "B". particolars Increased sales $500ooo Less: - cost of sales (375000) Recordieeeping & Shipping [$500.000 44.10] (2000) oncollectible accounts [Soooo X 6. 24. ] (31000) Additional net income | (Loss) $ 74000

should the company both the financial y to this decision. porse either non-financial plana Discoss factors relevant Realuiffement a plan (A) provides a slightly higher income, so if the company can only porsue one plan now, based on the financial aspect, it should choose plan (A) plan (A) expands its offerings into new markets, and could increase sates over time. However, this is a new model for the company and it might lack the expertise to execute it. It will los need to forther assess whether the benefit of subscription sales over time will be more fless than the cost of lost advertising Sales: Tarling credit cards for these subscription sales reduces its risk of uncollectible accounts. The credit card company takes the risk of the customer not paying plan (B) is a way to expand sales by offering merchandise. The client company does von some unknown siste associated with having new Costomers. While the client Company may understand its corrent costomers, it will need to monitor the new customers to malce sore that the uncollectible accounts do not rise beyond acceptable levels.