Question

Farmer Jane is anticipating an increase in sales of 25%. If her contribution margin on her sales this year was $29,000 and her net profit $10,000, what can she anticipate her net profit will be next year if nothing else changes?

(A) $36,250
(B) $35,000
(C) $37,500
(D) $30,000

Answer 1

To calculate the anticipated net profit for Farmer Jane next year, we can use the concept of contribution margin. Given that her contribution margin this year was $29,000 and she is anticipating a 25% increase in sales, her anticipated net profit for next year will be $17,250 if nothing else changes.

Step-by-step explanation:

To calculate the anticipated net profit for Farmer Jane next year, we can use the concept of contribution margin. Contribution margin is the difference between total sales revenue and total variable costs. Since Jane is anticipating a 25% increase in sales, we can assume that her total sales revenue will increase by 25% as well.

Given that her contribution margin this year was $29,000, we can calculate the anticipated net profit for next year by multiplying the contribution margin by the anticipated sales increase percentage:

$$10,000 + ($29,000 imes 0.25) = $10,000 + $7,250 = $17,250.$$

Therefore, Farmer Jane can anticipate her net profit to be $17,250 next year if nothing else changes.