a) Below is a table containing monthly sales and sales staff compensation, in do

ID: 2608128 • Letter: A

Question

a)
Below is a table containing monthly sales and sales staff compensation, in dollars for the previous year. Use the high-low method to create an equation in the form Y = a+ bX to describe

the behavior of sales staff compensation. Month Comp Sales 1 412,700 1,808,000 2 386,000 1,659,000 3 359,700 1,512,000 4 346,500 1,138,000 5 359,400 1,218,900 6 341,000 1,233,000 7 366,500 1,409,300 8 364,200 1,437,000 9 400,100 1,616,600 10 443,000 1,833,000 11 432,900 1,858,000 12 409,600 1,735,000 b) Other information: Store rent expense is $70,000 / month Utilites on average amount to 5% of sales staff compensation Management staff, in aggregate, are paid $10,000 / month plus 2% of sales Cost of goods sold is typically 58% of sales Miscellaneous expenses are $1,000 / month Given these data, determine the forecast net profit of the store at sales of $2,000,000 for the month c) Identify at least two potential weaknesses in your profit forecast. (Limit 100 words)

Explanation / Answer

Particulars

Amount

a) Sales

2000000

b) Cost of Goods Sold(a*58%)

1160000

c) Store Rent

70000

d) Utilities(a*5%

100000

e) Management Staff(10000+a*5%)

110000

f) Misc Expenses

1000

g) Profit Forecast(a-b-c-d-e-f)

559000

c) The two potential weakness areThe utilities and staff expense are calculated based on percentage of sales which may not be accurate