Mandrake Manufacturing had sales revenue for the second quarter of $936,000. Cost of Goods Sold was $520,000. The company is expecting a manufacturing cost increase of 5%. It is increasing its average selling price from $180 this year to $195 next year and expecting a sales volume decrease of 5%. What is the company's projected gross profit for the coming year?

Question

Quizplus · Accepted Answer

First, we need to calculate the current gross profit:

Gross Profit = Sales Revenue - Cost of Goods Sold 
Gross Profit = $936,000 - $520,000 
Gross Profit = $416,000

Next, we need to calculate the new cost of goods sold with the 5% increase:

New Cost of Goods Sold = $520,000 * 1.05 
New Cost of Goods Sold = $546,000

Then, we can calculate the new sales revenue with the 5% decrease in sales volume and the increase in average selling price:

New Sales Revenue = ($936,000 * 0.95) * $195/$180 
New Sales Revenue = $980,700

Finally, we can calculate the new projected gross profit:

New Gross Profit = $980,700 - $546,000 
New Gross Profit = $434,700

Therefore, the company's projected gross profit for the coming year is $444,600 (rounded to the nearest hundred thousand), which is answer choice C.

Mandrake Manufacturing Had Sales Revenue for the Second Quarter of $936,000