Problem Two Frames R Us sells two types of frames Frames R Us sells two types of

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Problem Two  

Frames R Us sells two types of frames

Frames R Us sells two types of frames - large and small to two types of customers - gift shops and discount stores: Required: Using the information above, determine the operating income and return on sales for both the Gift Shops division and the Discount Stores division, and place your answers in the provided areas below. Gift Shops operating income Discount Stores operating income __ Gift Shops ROS (%) _Discount Stores ROS (%) _ Required: Assume Frames R Us desires a 25% return on sales. What level of profit enhancement (cost reduction) is required to meet the profitability target at the same level of sales? By what percentage must current costs be reduced to reach this goal? Dollar amount of reduction in costs _ Percentage that current costs must be lowered to reach 25% ROS __ Problem Three Great Chocolate sells two types of candy - bars and gift boxes to two types of customers - specialty shops and drug stores: Required: Using the information above, determine the operating income and return on sales (ROS) for both the Specialty Shops division and the Drug Stores division, and place your answers in the provided areas below. Specialty Shops operating income Drug Stores operating income _ Specialty Shops ROS (%) _ Drug Stores ROS (%) Required: Assume Great Chocolate desires a 40% return on sales. What level of profit enhancement (cost reduction) is required to meet the profitability target at the same level of sales? By what percentage must current costs be reduced to reach this goal? Dollar amount of reduction in costs Percentage that current costs must be lowered to reach 40% ROS _

Explanation / Answer

GREAT CHOCOLATES:

OP INCOME OF SPECIALITY SHOP:

PART BAR GIFT SHOP

CONT 768000 360000

-OPEXP=525000

OP INC=603000

ROS=603000/2200000*100=27.41%

OP INCOME OF DRUG STORE:

PART BAR GIFT SHOP

CONT 192000 3240000

-OP EXP 1225000

OP INCOME=2207000

ROS=2207000/5800000*100=38.05%

NEXT REQ:

TARGET RETURN=40%ON SALES=3200000

PRESENT COST=VC=1040000+2400000

OC=+1750000

TOTAL=5190000

DESIRED COST=-4800000

REDUCTION IN COST =390000

% REDUCTION IN COST=390000/5190000*100=7.51%

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