Average selling price per Kg $ 5.00 Average variable costs per Kg Cost of fish $ 2.50 Shipping expenses $ 0.50 Total $ 3.00 Annual fixed costs Selling $ 210,000 Administrative $ 356,250 Total $ 566,250 Expected annual sales volume (390,000 kgs) Tax rate 40%
Bad Debts
At the end of the accounting period, a financial statement is prepared by every company, then at that time while preparing the financial statement, the company determines among its total receivable amount how much portion of receivables is collected by the company during that accounting period.
Accounts Receivable
The word “account receivable” means the payment is yet to be made for the work that is already done. Generally, each and every business sells its goods and services either in cash or in credit. So, when the goods are sold on credit account receivable arise which means the company is going to get the payment from its customer to whom the goods are sold on credit. Usually, the credit period may be for a very short period of time and in some rare cases it takes a year.
Golden Fish Company is a wholesale distributor of all kinds of fish in Ramallah. The Company services grocery stores in the Ramallah District.
Small but steady growth in sales has been achieved by Golden Fish over the past few years, while fish prices have been increasing. The company is formulating its plans for the coming fiscal year. Presented next are the data used to project the current year’s after-tax net income of $128,250.
Average selling price per Kg $ 5.00
Cost of fish $ 2.50
Shipping expenses $ 0.50
Total $ 3.00
Annual fixed costs
Selling $ 210,000
Administrative $ 356,250
Total $ 566,250
Expected annual sales volume (390,000 kgs)
Tax rate 40%
Fishing companies have announced that they will increase prices of their products by an average of 15% in the coming year, owing mainly to increases in labour costs. Golden Fish Company expects that all other costs will remain at the same rates or levels as in the current year.
Required:
- What is Golden Fish Company’s break even point in Kgs for the current year?
- What selling price per Kg must Golden Fish Company charge to cover the 15% increase in the cost of fish and still maintain the current contribution margin ratio?
- What volume of sales in dollars must the Golden Fish Company achieve in the coming year to maintain the same net income after taxes as projected for the current year if the selling price of fish remains at $5 per Kg and the cost of fish increases 15%?
- What strategies might Golden Fish Company use to maintain the same net income after taxes as projected for the current year?
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