Question

Sedgwick Inc. is considering Plan 1 which is estimated to have sales of $40,000 and costs of $15,500. The company currently has sales of $37,000 and costs of $14,000. Compare plans using incremental analysis. If Plan 1 is selected, there would be incremental Choose your answer here in profit by $Type your answer here .

Answer 1

Answer:

If Plan 1 is selected, there would be 0.652 incremental profit by $1,500.

Explanation:

This can be calculated as follows:

Incremental sales revenue = Estimated sales revenue - Current sales revenue = $40,000 - $37,000 = $3,000

Incremental costs = Estimated cost - Current costs = $15,500 - $14,000 = $1,500.

Incremental profit = Incremental sales revenue - Incremental costs = $3,000 - $1,500 = $1,500

Profit from current operation = $37,000 - $14,000 = $23,000.

Percentage increase in profit = ($1,500/$23,000) * 100 = 6.52%, or 0.652

Therefore, if Plan 1 is selected there would be 0.652 incremental profit by $1,500