Question

Flingers Inc. reveals the following information in their annual report for FY 2017. Earnings and Expenses Sales $10,000,000 Cost of goods sold $5,000,000 Pretax earnings $500,000 Selected Balance Sheet Items Merchandise inventory $80,000 Total assets $2,000,000 Upper management plans to cut cost of goods sold by 6% for the coming year but retain the same sales. What will Flingers' pretax earnings be for 2018

Answer 1

$800,000

Step-by-step explanation:

The computation of the pre tax earnings for the year 2018 is shown below:

As we know that

Pretax Earnings = Sales - Cost of Goods Sold - Operating Expenses

Now put the given values

$500,000 = $10,000,000 - $5,000,000 - Operating expenses

So, the operating expenses is

= $5,000,000 - $500,000

= $4,500,000

Now the cost of good sold would be cut by 6%

So, the pre tax earnings for the year 2018 is

= $10,000,000 - ($5,000,000 × 0.94) - $4,500,000

= $10,000,000 - $4,700,000 - $4,500,000

= $800,000