Lemon Auto Wholesalers had sales of $1,000,000last year, and cost of goods sold represented 78percent of sales. Selling and administrativeexpenses were 12 percent of sales. Depreciationexpense was $11,000 and interest expense for theyear was $8,000. The firm's tax rate is 30 percent.a. Compute earnings after taxes.b. Assume the firm hires Ms. Carr, an efficiencyexpert, as a consultant.She suggests that byincreasing selling and administrative expensesto14 percent of sales, sales can be increased to$1,050,900. The extra sales effort will also reducecost of goods sold to 74 percent of sales. (Therewill be a larger markup in prices as a result of moreaggressive selling.) Depreciation expense willremain at $11,000. However, more automobileswill have to be carried in inventory to satisfycustomers, and interest expense will go up to$15,800. The firm's tax rate will remain at 30percent. Compute revised earnings after taxesbased on Ms. Carr's suggestions for Lemon AutoWholesalers. Will her ideas increase or decreaseprofitability?

The question is based on the concept of business transaction analysis.

Lemon Auto Wholesalers had sales of $1,000,000 last year, and cost of goods sold represented 78 percent of sales. Selling and administrative expenses were 12 percent of sales. Depreciation expense was $11,000 and interest expense for th year was $8,000. The firm's tax rate is 30 percent

Lemon Auto Wholesalers had sales of $1,000,000 last year, and cost of goods sold represented 78 percent of sales. Selling and administrative expenses were 12 percent of sales. Depreciation expense was $11,000 and interest expense for th year was $8,000. The firm's tax rate is 30 percent

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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