Reference no: EM131135393
Scenario
Jumping Java Inc. currently sells gourmet coffee through multiple outlets. You are a consultant, and the company is asking you for guidance for two possible plans, A or B, for expanding sales.
Plan A: Jumping Java would begin selling additional products online directly to customers, which are only currently sold directly to stores. These new online customers would use their credit cards. The company currently has the capability of selling through its website with no additional investment in hardware or software. Credit sales are expected to increase by $250,000 per year. The costs of these sales will be $135,500. Credit card fees will be 4.75% of sales, and additional recordkeeping and shipping costs will be 6% of sales. These online sales will reduce the sales to stores by $35,000 because some customers will now purchase items online. Sales to stores have a 25% gross margin percentage.
Plan B: The company would expand its market to more stores. It would make additional credit sales of $500,000 to those stores. Cost of sales for store sales will be $375,000. Additional recordkeeping and shipping costs will be 4% of sales, and uncollectible accounts will be 6.2% of sales.
Required:
1. Compute the additional net income or loss expected under Plan A and Plan B.
2. Should the company pursue either plan? In a one to two page memo, discuss both the financial and nonfinancial factors relevant to this decision.
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