Three years ago, Helen Martin and her brother-in-law Donald Robinson opened Metlock Department Store. For the first 2 years, business was good, but the following condensed income statement results for 2022 were disappointing.

METLOCK DEPARTMENT STORE Income Statement For the Year Ended December 31, 2022
Net sales				$850,000
Cost of goods sold				680,000
Gross profit				170,000
Operating expenses
Selling expenses		$118,750
Administrative expenses		23,750
				142,500
Net income				$27,500

Helen believes the problem lies in the relatively low gross profit rate of 20%. Donald believes the problem is that operating expenses are too high. Helen thinks the gross profit rate can be improved by making two changes. (1) Increase average selling prices by 15%; this increase is expected to lower sales volume so that total sales dollars will increase only 4%. (2) Buy merchandise in larger quantities and take all purchase discounts. These changes to purchasing practices are expected to increase the gross profit rate from its current rate of 20% to a new rate of 25%. Helen does not anticipate that these changes will have any effect on operating expenses.

Donald thinks expenses can be cut by making these two changes. (1) Cut 2023 sales salaries of $71,250 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 2023 delivery expenses of $47,500 by 40%. Donald feels that these changes will not have any effect on net sales.

Helen and Donald come to you for help in deciding the best way to improve net income.

Answer the following.

Prepare a condensed income statement for 2023 assuming Helen’s changes are implemented.

Prepare a condensed income statement for 2023 assuming Donald’s ideas are adopted.

Answer rating: 100% (QA)

Helans Change are implimented Metlock Department Store Income Statement For the year ended Dec 31 23 ... View the full answer