A Firm Has $200,000 to Spend on Either Direct Sales

question 199

Essay

A firm has $200,000 to spend on either direct sales or advertising.Suppose further that if the $200,000 is spent on direct sales, it will bring in an accounting profit of $40,000.Instead, the (accounting) profit it could obtain from a $200,000 investment in advertising is $X.Compare the profitability of the two options if (a) X = 50,000, (b) X = 30,000, or (c) X = 40,000.

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Definitions:

Sales Budget

A financial plan that estimates the expected sales revenue for a period, including units sold and revenue expected.

Cash Budget

A cash budget is a financial plan or forecast that outlines expected cash inflows and outflows over a specific period, helping businesses manage their cash flow.

Purchases Budget

A financial plan that estimates the amount of goods or inventory a business needs to buy over a certain period to meet its sales goals.

Production Budget

An estimation of the total output a company needs to meet its sales goals and inventory policies, expressed in units or monetary terms.