Answer:
See answers below
Explanation:
Incremental income after tax
Incremental sales. $115,000
Less:
Expected uncollectibles
(115,000 × 9%) $10,350
Additional collection cost
(115,000 × 6%) $6,900
Production and selling cost
(115,000 × 75%) $86,250
Total balance. ($103,500)
Increase in before- tax inc. $11,500
Less: tax 30%. ($3,450)
Increase in after tax income $8,050
a. Incremental income after taxes $8,050
b. Johnson's incremental return on sales
= Increase in after - tax income / incremental sales
= $8,050 / $115,000
= 7%
c. Incremental return on new average
Incremental sales. $115,000
Accounts receivable
turnover ratio. 3
Average investments.
in assets $38,333
*Note: Average investment in assets = Sales / Accounts receivable turnover ratio.
Incremental return on new average investment
= Increase in after tax income / Average investments in assets
= $8,050 / $38,333
= 21%
