Teen World Inc sells a wide selection of clothing items
Teen World Inc. sells a wide selection of clothing items for teenage girls. The company imports merchandise from various international suppliers and distributes its merchandise to retail stores in major shopping areas. The company sells merchandise on credit, allows retailers to return incorrect or damaged merchandise within a period of two months, and grants sales allowances under certain circumstances. The company is currently reviewing its sales returns policy and provided you with the following information for the past six quarters:
1. Compute the following ratios for each of the six quarters: (a) cost of sales to net sales and (b) sales return and allowances to gross sales.
2. Comment on the ratios computed in (1) and identify possible reasons for the increase in the amount of sales returns and allowances, and give your recommendations for controlling the amount of sales returns and allowances.
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