[Prof. Templeton]

Prof. Templeton makes and sells wooden widgets from his back-yard for $150 each. His only costs are for materials. It takes him two hours to make a wooden widget. He sold 150 last year, for a profit of $7,500. This year he raises the price by 15%, but sells 30% fewer widgets. Assuming his cost for making each widget hasn't changed…

A.)Does his profit increase or decrease?

B.)By what percentage does his profit change?

C.)What is the percentage change in his profit-per-hour-of labor?

D.)Will the IRS come after him for income tax after seeing this post?

[Guest]

A. Increases by $112.50

B. 1.5% Increase

C. 45% Increase

D. No, because his standard deduction and personal exemption (plus work related expenses) reduce his Taxable Income to 0, unless of course this is "Hobby Income" and he has a real job too.

[Prof. Templeton]

D. No, because his standard deduction and personal exemption (plus work related expenses) reduce his Taxable Income to 0, unless of course this is "Hobby Income" and he has a real job too.

Are you busy this tax season? I could use some help with the forms.

[Guest]

Prof. Templeton makes and sells wooden widgets from his back-yard for $150 each. His only costs are for materials. It takes him two hours to make a wooden widget. He sold 150 last year, for a profit of $7,500. This year he raises the price by 15%, but sells 30% fewer widgets. Assuming his cost for making each widget hasn't changed…

A.)Does his profit increase or decrease?

B.)By what percentage does his profit change?

C.)What is the percentage change in his profit-per-hour-of labor?

D.)Will the IRS come after him for income tax after seeing this post?

Hours of Labor put in = 2 x 150 = 300 hours

Profit per widget = $50

Profit per hour of labor = $25

Cost Price per widget = $100

Total Cost Price = $ 15,000

Percentage of Profit = 50%

By raising the price by 15% his new selling price is $ 172.50

His profit per widget is now $ 22.50

Profit per hour of labor = $11.25

He sold 30% lesser, that makes it 105 pieces sold

Total Cost Price = $10500

Total Profit = $ 2362.50

New Percentage of Profit = 22.5%

A.)Does his profit increase or decrease?

His profit has decreased

B.)By what percentage does his profit change?

It is lesser by 27.5%

C.)What is the percentage change in his profit-per-hour-of labor?

45% Lesser

D.)Will the IRS come after him for income tax after seeing this post?

It depends upon which country he is in

Edited August 29, 2008 by Ben Law

[Guest]

Are you busy this tax season? I could use some help with the forms.

Yah, working 60+ hour weeks from January-April for my accounting firm. That's why come October-November, you're going to see a rapid decline in the number of posts I submit

[Guest]

A) Profit goes up.

B) Profit for the year goes up by about 10%

C) Profit per hour labot goes up about 69%

D) Yes, because he's self employed making earnings over $400 a year. He needs to pick up a publication 334.

[Guest]

Fatal Flaw, B-L...identify your Cost of Goods Sold for the new year and then take another peek at your profits...

[Guest]

Ben Law:

His profit per widget is now $ 22.50

Nope, it's $72.50. His costs don't increase from the $100 per widget.

[Guest]

D) Yes, because he's self employed making earnings over $400 a year. He needs to pick up a publication 334.

My Fatal Flaw--Self Employment Income...Haven't gotten to that section in Reg. yet and Individual Income Tax class was too long ago to remember

[Guest]

Messed up my own math too it seems. :0)

[Guest]

Fatal Flaw, B-L...identify your Cost of Goods Sold for the new year and then take another peek at your profits...

Since the cost of raw material does not change it is still $100 per widget

So since he sold 105 widgets in the new year

Total Cost Price = $10500

[Guest]

Ben Law:

His profit per widget is now $ 22.50

Nope, it's $72.50. His costs don't increase from the $100 per widget.

Oops ... Right TY

[Guest]

Right. COGS=10,500 Gross Revenue=18,112.50 Profit Margin=7,612.50 7612.50>7500

[Guest]

Prof. Templeton makes and sells wooden widgets from his back-yard for $150 each. His only costs are for materials. It takes him two hours to make a wooden widget. He sold 150 last year, for a profit of $7,500. This year he raises the price by 15%, but sells 30% fewer widgets. Assuming his cost for making each widget hasn't changed…

A.)Does his profit increase or decrease?

B.)By what percentage does his profit change?

C.)What is the percentage change in his profit-per-hour-of labor?

D.)Will the IRS come after him for income tax after seeing this post?

Hours of Labor put in = 2 x 150 = 300 hours

Profit per widget = $50

Profit per hour of labor = $25

Cost Price per widget = $100

Total Cost Price = $ 15,000

Percentage of Profit = 50%

By raising the price by 15% his new selling price is $ 172.50

His profit per widget is now $ 72.50

Profit per hour of labor = $36.25

He sold 30% lesser, that makes it 105 pieces sold

Total Cost Price = $10500

Total Profit = $ 7612.50

New Percentage of Profit = 72.5%

A.)Does his profit increase or decrease?

His profit has increased

B.)By what percentage does his profit change?

It has increased by 22.5%

C.)What is the percentage change in his profit-per-hour-of labor?

45% more

D.)Will the IRS come after him for income tax after seeing this post?

It depends upon which country he is in

[Prof. Templeton]

A. Increases by $112.50

B. 1.5% Increase

C. 45% Increase

All good but C.

[Guest]

Close B-L....His profit per unit increases by $22.50, but that's not the percentage change

[Guest]

Close B-L....His profit per unit increases by $22.50, but that's not the percentage change

Old gain was $50

Therefore percentage change in profit is 2250/50 = 45%

[Guest]

All good but C.

How is C incorrect? Do we all agree that in the first year, his Profit her Hour of Labor was $25 and in his second year, it was $36.25? If so, subtract 25 from 36.25 to get the gain (11.25) and divide that by 25 to get the increase (45%). By my calculations, 45% is correct

[Prof. Templeton]

How is C incorrect? Do we all agree that in the first year, his Profit her Hour of Labor was $25 and in his second year, it was $36.25? If so, subtract 25 from 36.25 to get the gain (11.25) and divide that by 25 to get the increase (45%). By my calculations, 45% is correct

You're correct. I was thinking of Gross Margin, but I had asked you for percentage of change.

100 % on all three. Good Job, and quick too.

[Guest]

1. Yes

2. 1.5%

3. 45%

4. No, not for this post. The IRS will come after him for the money, period.

[Guest]

Needed to check with the prof. However dont want to detract from the puzzle, hence have commented in a spoiler.

Maybe just semantics but a few clarifications required.

The post mentions the goodman had "sold" only 150 widgets the previous year and also mentions it takes 2 hrs of labour to make one.

Generally, one makes as much as one can and then sells as much of the production as possible.

Hence in a 5 day, 52 week year working for 8 hrs a day, he can make 1040 widgets of which he sold 150 @ 150$ and made a profit of 7500$.

Unsold stock is not considered profit and is carried forward as opening stock in the next year. so next year we have a total of that years production as well as unsold stock of previous year totaling 1930 widgets.

This would require storage costs which would increase cost of product and reduce profit .

So while the mathematically the procedure of calculation may be right, practically there are are a lot more variables to consider given the wording of the problem.

[preflop]

Needed to check with the prof. However dont want to detract from the puzzle, hence have commented in a spoiler.

Maybe just semantics but a few clarifications required.

The post mentions the goodman had "sold" only 150 widgets the previous year and also mentions it takes 2 hrs of labour to make one.

Generally, one makes as much as one can and then sells as much of the production as possible.

Hence in a 5 day, 52 week year working for 8 hrs a day, he can make 1040 widgets of which he sold 150 @ 150$ and made a profit of 7500$.

Unsold stock is not considered profit and is carried forward as opening stock in the next year. so next year we have a total of that years production as well as unsold stock of previous year totaling 1930 widgets.

This would require storage costs which would increase cost of product and reduce profit .

So while the mathematically the procedure of calculation may be right, practically there are are a lot more variables to consider given the wording of the problem.

methinks you are reading way too much into this. It is clear from the problem that he built only as many as he sold. Think of the good professor building widgets only on consignment, so when he gets his order (prepaid in full of course) he then makes it.

Your assumption is ok for big business i guess, even though they do not make as many as they can, they make what they think they can sell, and allow for some overstock usally. which is a far cry from as many as they can.

[Prof. Templeton]

methinks you are reading way too much into this. It is clear from the problem that he built only as many as he sold. Think of the good professor building widgets only on consignment, so when he gets his order (prepaid in full of course) he then makes it.

Your assumption is ok for big business i guess, even though they do not make as many as they can, they make what they think they can sell, and allow for some overstock usally. which is a far cry from as many as they can.

Exactly. Special order only. Place your pre-orders now as supplies are limited and going fast. Everyone wants their wooden widgets.