Data for Poorten Wholesale Ltd. are presented in P5-6B.

In P5-6B

The adjusted trial balance of Poorten Wholesale Ltd. contained the following accounts at November 30, the company's fiscal year end:

Instructions
(a) Calculate the profit margin and gross profit margin.
(b) The vice-president of marketing and director of human resources have proposed that the company would change its compensation of the sales force to a commission basis rather than paying a fixed salary. Given the increased incentive, they expect net sales to increase by 10%. They estimate that gross profit will increase by $30,000, operating expenses by $16,000, and income tax expense by $2,000. Net non-operating expense is not expected to change. Calculate the expected new gross profit and profit amounts.
(c) Calculate the revised gross profit margin and profit margin, using the information you calculated in b. Comment on the effect that this plan would have on profitability and evaluate the merit of this proposal.

Transcribed Image Text:

POORTEN WHOLESALE LTD. Adjusted Trial Balance November 30, 2012 Credit Notes receivable Accumulated depreciation-buildings Accumulated depreciation-equipment 3 850,300 Sales returns and allowances 170,670 1,620 $1,130,920 $ 1,1 30,920