Francois French manufactures cheese, which he normally sells at €20/kg, on which sales commission of 5% is paid. Plant capacity is 7,500 kg/month. Income tax is levied at 30%. $\quad $$\quad $$\quad $$\quad $$\quad $$\text { Fixed costs } $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$ \text { Costs per kg. } $
$\begin{array}{|l|r|l|c|}
\hline \text { Plant depreciation } & £8,000 & \text { Direct materials } & £4 \
\hline \text { Other plant costs } & 15,000 & \text { Direct labor } & 2 \
\hline \text { Corporate salaries } & 10,000 & \text { Var. factory } \mathrm{O} / \mathrm{H} & 3 \
\hline \text { Advertising } & 3,000 & &\
\hline
\end{array}$
Francois French wants to increase after-tax profits to €35,000. Assuming sufficient demand, which strategy achieves this goal?

Question

Francois French manufactures cheese, which he normally sells at €20/kg, on which sales commission of 5% is paid. Plant capacity is 7,500 kg/month. Income tax is levied at 30%. $\quad $$\quad $$\quad $$\quad $$\quad $$\text { Fixed costs } $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$ \text { Costs per kg. } $
$\begin{array}{|l|r|l|c|}
\hline \text { Plant depreciation } & £8,000 & \text { Direct materials } & £4 \
\hline \text { Other plant costs } & 15,000 & \text { Direct labor } & 2 \
\hline \text { Corporate salaries } & 10,000 & \text { Var. factory } \mathrm{O} / \mathrm{H} & 3 \
\hline \text { Advertising } & 3,000 & &\
\hline
\end{array}$
 Francois French wants to increase after-tax profits to €35,000. Assuming sufficient demand, which strategy achieves this goal?

Quizplus · Accepted Answer

To achieve an after-tax profit of €35,000, we must first calculate the required pre-tax profit by dividing €35,000 by (1 - 0.30) = €50,000. Next, we calculate the total fixed costs (£8,000 + £15,000 + £10,000 + £3,000 = £36,000) and convert them to euros (assuming £1 = €1 for simplicity, as the exchange rate is not provided). The variable costs per kg are £4 + £2 + £3 = £9 (or €9). For each strategy, we calculate the total revenue, total variable costs, total fixed costs, and the resulting pre-tax profit to see if it meets the €50,000 target. None of the provided strategies directly leads to the required pre-tax profit when considering the costs, sales commission, and income tax, hence the correct answer is E.

Francois French Manufactures Cheese, Which He Normally Sells at €20/kg \quad

Francois French Manufactures Cheese, Which He Normally Sells at €20/kg $\quad$