Question

Last year, Pastis Productions reported $100,000 in sales and $40,000 in cost of goods sold. The company estimates it would have doubled its sales and cost of goods sold had it allowed customers to buy on credit, but it also would have incurred $50,000 in additional expenses relating to wages, bad debts, and interest. Using these estimates, calculate the amount by which Income from Operations would increase (decrease).

Answer 1

$10,000

Step-by-step explanation:

The computation of the increase or decrease of income from operations is shown below

Without Credit

Income from Operations is

= $100,000 - $40,000

= $60,000

And,

With Credit

Income from Operations is

= 2 × ($100,000 - $40,000) -$50,000

= $70,000

So, there is Increase in Income from Operations i.e.

= $70,000 - $60,000

= $10,000