Question

The vice president of marketing and the director of human resources have developed a proposal whereby the company would compensate the sales force on a strictly commission basis. Given the increased incentive, they expect net sales to increase by 15%. As a result, they estimate that gross profit will increase by $58,238 and expenses by $84,384. Compute the expected new net income. Then, compute the revised profit margin and gross profit rate. (Ignore income tax effects.)

Answer 1

Answer:

Additional information

The previous net income was 45041 and the net sales was 906984

compute the revised profit margin and gross profit rate.

Profit Margin = 96704

GP Rate = 9,27%

Explanation:

Profit Margin Ratio = (Net Profit/Net Sales) x 100

Previous Year:

Net sales = 906,984

Less: Net Income= 45,041

Expense = 861,943

Current Year:

Net Sales= 906984+(15%*906984)= 1043031,60

Less:Expenses=861943+84384= 946327

Expected Net Income= 96704

Profit Margin Ratio = (96704/1,043,031.60) x 100 = 9,27%

Net increase in G.P. =58238

Net increase in Sales = (906,984x15%)= 136,047.60

GP Ratio = (58238.00/136047,60) x 100 = 42.80%