Question

Carr Auto Wholesalers had sales of $1,510,000 in 2015, and cost of goods sold represented 76 percent of sales. Selling and administrative expenses were 12 percent of sales. Amortization expense was $19,000 and interest expense for the year was $10,000. The firm's tax rate is 30 percent. a. Compute earnings after taxes using Percentage-of-Sales Method. (Input all answers as positive values.) CARR AUTO WHOLESALERS Income Statement For the Year Ended December 31, 2015 TClick to select) Cick to select) Interest expense Taxes Cost of goods sold Earnings after taxes Earnings before taxes Sales Selling and administrative expense Amortization expense (Click to select) (Click to select) (Click to select) b-1. Assume the firm hires Ms. Hood, an efficiency expert, as a consultant. She suggests that by increasing selling and administrative expenses to 14 percent of sales, sales can be increased to $1,560,100. The extra sales effort will also reduce cost of goods sold to 72 percent of sales (There will be a larger mark-up in prices as a result of more aggressive selling). Amortization expense will remain at $19,000. However, more automobiles will have to be carried in Inventory to satisfy customers, and interest expense will go up to $17,300. The firm's tax rate will remain at 30 percent. Compute revised earnings after taxes based on Ms. Hood's suggestions for Carr Auto Wholesalers. (Input all answers as positive values.) CARR AUTO WHOLESALERS Income Statement For the Year Ended December 31, 2015 Click to select) Click to select) Click to select) Click to select) Click to select) Tricick to seled) Click to select) Tick to select) (Click to select) Click to select b-2. Will her ideas increase or decrease profitability? Increase profitability

Answer 1

Ang a Income statement 1510000 Sales lost of goods sold (767 of sales) 76% of 151000o) 41147600) 362,400 Gross Profit Expense Sellin 7181200) 101200 ligooo) rative Esperse (12% of sales PB DAIT (Profit before Amourrigation depreciation { interest a tas Intrast Expense Amortization Expene PBIT (Profit befour Interest 4 Fax) Interest Expense PBT (Profit befour tox) Току (зб. 0, PBT) PAT (Profit after tase 162200 (10000) 152200 145660) 106540 Sales Cost of good's sold (72% of soles) Gross Profit selling a Administration Exup (14% of sales ) PBADIT Profit before Amoortization depreciation Interest 4 tax Amortization Eap. PBIT (Profit befort Interest a Tos) Interest Expense PBT (Profit Beforre Taxe Tas (30% of PBT PAT (Profit after taxe) 1560100 (1123272) 436828 2184 14 218414 (19000) 1994 14 117300) 182114 (54634.2) 127479.80