Question

Nutty Productions Inc. generated service revenue of $56,000 and income from operations of $23,000. The company estimates that, had it extended credit it would have instead generated $99,000 of service revenue, but it would have incurred $38,000 of additional expenses for wages and bad debts. 1-a. Using these estimates, calculate the amount by which Income from Operations would increase By___________

Answer 1

$5,000

Step-by-step explanation:

Income from operations is the difference between the revenue from operations and the expenses incurred in the process of generating this revenue.

Given that extending credits would have resulted in sales being $99,000 and an additional expense of $38,000, net income from operations would be

= $99,000 - $38,000 - $23,000

= $38,000

Income from operations without credit extension

= $56,000 - $23,000

= $33,000

Increase in operating income

=$38,000 - $33,000

= $5,000

Answer 2

Net income from operations would increase by $5,000

Step-by-step explanation:

According to the given data we have the following:

generated service revenue=$56,000

service revenue if had extended credit=$99,000

Incremental cost = $ 38000

Therefore, first in order to calculate the amount by which Income from Operations would increase By, we have to calculate first the Incremental revenue if credit is extended

Incremental revenue if credit is extended = $99,000 - $56,000 = $43,000

Therefore, Net income from operations would increase by = $43,000 - $38,000 = $ 5,000