Price Corp. is considering selling to a group of new customers and creating new annual sales of $70,000. 5% will be uncollectible. The collection cost on these accounts is 3.5%, the cost of producing and selling is 80% of sales and the firm is in the 31% tax bracket. What is the profit on new sales?
A) $5,554.50
B) $9,660.00
C) $7,245.00
D) none of the other answers are correct

Question

Quizplus · Accepted Answer

Explanation:Sales = $70,000Uncollectible accounts = 5% * $70,000 = $3,500Collection cost = 3.5% * $70,000 = $2,450Cost of production and selling = 80% * $70,000 = $56,000Profit before tax = $70,000 - $3,500 - $2,450 - $56,000 = $8,050Tax = 31% * $8,050 = $2,495.50Profit after tax = $8,050 - $2,495.50 = $5,554.50