Question

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

Sales		$552,000
Cost of goods sold		378,000
Gross profit		174,000
Direct expenses		120,000
Common expenses		66,000
Total expenses		186,000
Net loss		$(12,000)

Suppose that department B could increase physical volume of product sold by 10% if it spent an additional $19,000 on advertising while leaving selling prices unchanged. What effect would this have on the department's net income or net loss? (Ignore income tax in your calculations.)

Use a negative sign to indicate a net loss answer; otherwise do not use negative signs with your answers.

Sales		Answer
Cost of goods sold		Answer
Gross profit		Answer
Direct expenses		Answer
Common expenses		Answer
Total expenses		Answer
Net income (loss)		Answer

Answer 1

Sales [$552,000 x 110%]	$ 607,200
Cost of goods sold [$378,000 x (607200/552000)]	$ 415,800
Gross profit	$ 191,400
Direct expenses [$120,000 + $19,000]	$ 139,000
Common expenses	$ 66,000
Total expenses	$ 205,000
Net loss	($ 13,600)