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32. ABC Company has received a request for a credit account with a limit of $50,000....

32. ABC Company has received a request for a credit account with a limit of $50,000. The new customer is expected to purchase $200,000 in merchandise each year. ABC’s expected gross margin on the merchandise is 25%. ABC also expected to incur variable expenses of 4% of net sales for the sales person’s commissions. Assuming a marginal tax rate of 30% how much additional net income does ABC expect to gain from this new customer each year?
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Answer #1

Calculation of Additional Net Income

Sales to new customer =$ 200,000

                          profit =1/5*$200,000

                                   =$40,000

Commission = 4% of sales

                  =4/100*$200,000

                   =$8,000

Income before tax from new customer = $40,000-$8,000

                                             =$32,000

Marginal tax rate @30% = $32,000*30/100

                                 =$9,600

Net income from new customer=$32,000-$9,600

                                             =$22,400

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