Answer:
The answer is $7400000
Explanation:
Solution
Recall that:
There is no information is given about per unit cost or sales price hence, a reverse calculation is to be made to find out the projected total revenue.
Now,
The reverse calculation to find sales is computed as follows:
Begin from the expected profit + Tax expenses + Interest Expenses + undistributed expenses + variable cost
Thus,
From the calculation of each term is as stated below:
1. The profit expected = 15% return on their investment. it is to be after tax return, total investment = $8000000,
So,
The Profit expected = $8000000 *15% = $1200000.
2. The tax xxpenses = 25% that is, it should be 25% on taxable profit which is decreased from it and then net profit after tax is available,
Thus,
we have net profit after tax we can compute the taxable profit as = $1200000 / 75% = $1600000. for example, tax amount on taxable profit = $160000 * 25% = $400000.
3. The Interest Expenses = 5% of borrowed fund from bank,
Now,
The borrowed fund from bank = $2000000 (8000000-6000000)
The expenses interest = $ 100000 ($2000000*5%)
4. Undistributed Expenses is stated as follows:
The Undistributed expenses are given in the question = $2000000.
5. Variable cost that is the labor cost and cost of food :
From the question it is given that it is 50% of the sales, which means the remaining 50% is the contribution.
Now
The contribution on reverse calculation is computed as:
Profit +taxes + Interest + fixed expenses
Contribution = 1200000 + 400000 + 100000 + 2000000 = $ 3700000,
Thus,
We say,let the sales be 10 , then variable cost be 50 and contribution is 50, that means variable cost = contribution in this case.
so, in proportional calculation , the variable cost = $3700000 .
Thus
The projected sales = expected profit + Tax expenses + Interest Expenses + undistributed expenses + variable cost
The total revenue projected =$1200000+ $ 400000 + $100000 + $ 2000000 +$ 3700000
Therefore, the total revenue projected = $ 7400000
