***urgent post*** Decisi BYPS Three years ago, Waking Across the Organization Fo

Question

***urgent post*** Decisi BYPS Three years ago, Waking Across the Organization For the first two years, business was good, but the following condensed income results so. Dana Mann and her brother-in-law Eric Boldt opened Family Depart- AN. S,E 2013 were disappointing. FAMILY DEPARTMENT STORE Income Statement For the Year Ended December 31, 2013 $700,000 553,000 147,000 Net sales . Cost of goods sold Gross profit Operating expenses Selling expenses Administrative expenses $100,000 20,000 120,000 $ 27,000 Net income Dans believes the problem lies in the relatively low gross profit rate (gross profit divided by net sales) of 21%. Eric believes the problem is that operating expenses are too high. Dana thinks the gross profit rate can be improved by making both of the following changes. She does not anticipate that these changes will have any effect on operating expenses. I. Increase average selling prices by 17%. This increase is expected to lower sales volume so that total sales will increase only 6%. 1. Buy merchandise in larger quantities and take all purchase discounts. These changes are expected to increase the gross profit rate by 3 percentage points. Eric thinks expenses can be cut by making both of the following changes. He feels that these changes will not have any effect on net sales. 1. Cut20 13 sales salaries of $60,000 in half and give sales personnel a commission of 2% of net sales. 2. Reduce store deliveries to one day per week rather than twice a week. This change will reduce 2013 delivery expenses of $30,000 by 40% Dana and Eric come to you for help in deciding the best way to improve net income. Instructions With the class divided into groups, answer the following. mented and (2) Eric's ideas are adopted. a condensed income statement for 2014, assuming (1) Dana's changes are imple

Explanation / Answer

(a) Actual Situation Dana Suggestions Eric Suggestions Net Sales          7,00,000 +6%    7,42,000            7,00,000 Cost of Goods Sold          5,53,000 (742000-178080)    5,63,920            5,53,000 Gross Profit 21%          1,47,000 24%    1,78,080            1,47,000 Operating Expenses Selling Exp    1,00,000                           1,00,000       72,000 100000-(50%*60000+40%*30000)+2%*700000 Admn. Exp       20,000          1,20,000                               20,000    1,20,000       20,000               92,000 Net Income             27,000       58,080               55,000 (b) Dana Suggestion is much better as profit is higher as compare to Eric Suggestions (c ) If bothe sets of suggestion accepted Condensed Income Statement Net Sales          7,00,000 Cost of Goods Sold          5,21,920 Gross Profit 24%          1,78,080 Operating Expenses Selling Exp       72,000 Admn. Exp       20,000             92,000 Net Income             86,080

Related Questions

Navigate

• Browse (All)
• Browse #
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.