Answer:
a) Incremental income after taxes:
•Additional sales--------------$156,000
•Accounts uncollectible
(5% of $156,000)-------------$7,800
• Annal revenue increment
(Ad sales-acts colectible)--$148,200
• Collection costs
(5% of $156,000)-----------------$7,800
• Production & selling costs
(73% of $156,000)-------------$113,880
• Annual income before tax
(Annual incremental rev -
Collection costs-prod.&sell
Costs)------------------------------$26,520
• Taxes at 20% -----------------$5,304
• Incremental income after
tax-----------------------------------$21,216
b) Incremental income on sales =
Incremental income/Incremental sales.
= (21216/156000)*100
= 13.60%
c) Receivable turnover =
Sales/Receivable
Receivables =
sales/receivable turnover
= 156000/3 = $52000
Based on the new average, incremental return will be:
(21216/52000) * 100
= 40.80%
