Variable cost of goods sold
Variable selling expenses
Variable administrative expenses
Annual fixed expenses
Blossom can produce 4,590,000 cases a year. The projected net income for the coming year is expected to be $5,508,000. Blossom is subject to a 40% income tax rate.
During the planning sessions, Blossom’s managers have been reviewing costs and expenses. They estimate that the company’s variable cost of goods sold will increase 15% in the coming year and that fixed administrative expenses will increase by $459,000. All other costs and expenses are expected to remain the same.
Blossom Company’s managers are considering expanding the product line by introducing a leather briefcase. The new briefcase is expected to sell for $91.00; variable costs would amount to $37.00 per briefcase. If Blossom introduces the leather briefcase, the company will incur an additional $918,000 per year in advertising costs. Blossom’s marketing department has estimated that one new leather briefcase would be sold for every four molded briefcases.