/*! This file is auto-generated */ .wp-block-button__link{color:#fff;background-color:#32373c;border-radius:9999px;box-shadow:none;text-decoration:none;padding:calc(.667em + 2px) calc(1.333em + 2px);font-size:1.125em}.wp-block-file__button{background:#32373c;color:#fff;text-decoration:none} 17BP_a Johnson Electronics is consideri... [FREE SOLUTION] | 91影视

91影视

Log out

Learning Materials

Features

Discover

Chapter 3: 17BP_a (page 223)

Johnson Electronics is considering extending trade credit to some customers previously considered poor risks. Sales would increase by $150,000 if credit is extended to these new customers. Of the new accounts receivable generated, 5 percent will prove to be uncollectible. Additional collection costs will be 2 percent of sales, and production and selling costs will be 74 percent of sales. The firm is in the 35 percent tax bracket.

a. Compute the incremental income after taxes.

Short Answer

Expert verified

The incremental income after taxes is $18,525.

Step by step solution

01

Meaning of incremental income

The incremental income refers to the additional income generated by the organization after an increase in its sales. The incremental income does not consider the overhead costs and only the production costs of additional production.

02

Calculation of incremental income after taxes

The incremental income after taxes is $18,525.

Particulars

Amount

Additional sales

$150,000

Accounts uncollectible (5% of additional sales)

($7,500)

Annual incremental revenue

$142,500

Collection costs (2% of additional sales)

($3,000)

Production and selling costs (74% of additional sales)

($111,000)

Annual income before taxes

$28,500

Taxes (35%)

($9,975)

Incremental income after taxes

$18,525

Unlock Step-by-Step Solutions & Ace Your Exams!

  • Full Textbook Solutions

    Get detailed explanations and key concepts

  • Unlimited Al creation

    Al flashcards, explanations, exams and more...

  • Ads-free access

    To over 500 millions flashcards

  • Money-back guarantee

    We refund you if you fail your exam.

Over 30 million students worldwide already upgrade their learning with 91影视!

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

How is a cash budget used to help manage current assets?

What does LIBOR mean? Is LIBOR normally higher or lower than the U.S. prime interest rate?

Assume that Hogan Surgical Instruments Co. has \(2,500,000 in assets. If it goes with a low-liquidity plan for the assets, it can earn a return of 18 percent, but with a high-liquidity plan, the return will be 14 percent. If the firm goes with a short-term financing plan, the financing costs on the \)2,500,000 will be 10 percent, and with a long-term financing plan, the financing costs on the $2,500,000 will be 12 percent. (Review Table 6-11 for parts a, b, and c of this problem.)

a. Compute the anticipated return after financing costs with the most aggressive asset financing mix.

b. Compute the anticipated return after financing costs with the most conservative asset financing mix.

c. Compute the anticipated return after financing costs with the two moderate approaches to the asset financing mix.

d. Would you necessarily accept the plan with the highest return after financing costs? Briefly explain.

Fast Turnstiles Co. is evaluating the extension of credit to a new group of customers. Although these customers will provide \(180,000 in additional credit sales, 12 percent are likely to be uncollectible. The company will also incur \)16,200 in additional collection expense. Production and marketing costs represent 72 percent of sales. The firm is in a 34 percent tax bracket and has a receivables turnover of four times. No other asset build-up will be required to service the new customers. The firm has a 10 percent desired return.

a. Calculate the incremental income after taxes and the return on incremental investment. Should Fast Turnstiles Co. extend credit to these customers?

What is the difference between pledging accounts receivable and factoring accounts receivable?
See all solutions

Recommended explanations on Business Studies Textbooks

Corporate Finance

Read Explanation

Strategic Direction

Read Explanation

Change Management

Read Explanation

Strategic Analysis

Read Explanation

Business Data Analytics

Read Explanation

International Business

Read Explanation
View all explanations

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.