Price Corp. is considering selling to a group of new customers and creating new annual sales of $90,000. 5% will be uncollectible. The collection cost on these accounts is 3% of new sales, the cost of producing and selling is 80% of sales and the firm is in the 30% tax bracket. What is the profit on new sales?
A) $7,560
B) $9,660
C) $7,245
D) none of these.

Question

Quizplus · Accepted Answer

The profit on new sales is $7,560. This is calculated as follows:Sales: $90,000Uncollectible accounts: $4,500 (5% of $90,000)Collection cost: $2,700 (3% of $90,000)Cost of goods sold: $72,000 (80% of $90,000)Gross profit: $10,800 ($90,000 - $72,000 - $2,700)Taxes: $3,240 (30% of $10,800)Net profit: $7,560 ($10,800 - $3,240)