Your sister operates Emigrant Parts Company, an online boat parts distributorship that is in its third year

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Your sister operates Emigrant Parts Company, an online boat parts distributorship that is in its third year of operation. The income statement is shown at the top of the following page and was recently prepared for the year ended July 31, 2008.
Your sister is considering a proposal to increase net income by offering sales discounts of 2/15, n/30, and by shipping all merchandise FOB shipping point. Currently, no sales discounts are allowed and merchandise is shipped FOB destination. It is estimated that these credit terms will increase net sales by 15%. The ratio of the cost of merchandise sold to net sales is expected to be 65%. All selling and administrative expenses are expected to remain unchanged, except for store supplies, miscellaneous selling, office supplies, and miscellaneous administrative expenses, which are expected to increase proportionately with increased net sales. The amounts of these preceding items for the year ended July 31, 2008, were as follows:

Your sister operates Emigrant Parts Company, an online boat part

Store supplies expense ............ $12,000
Miscellaneous selling expense ......... 3,000
Office supplies expense ........... 2,000
Miscellaneous administrative expense ...... 1,000
The other income and other expense items will remain unchanged. The shipment of all merchandise FOB shipping point will eliminate all delivery expense, which for the year ended July 31, 2008, were $18,750.
1. Prepare a projected single-step income statement for the year ending July 31, 2009, based on the proposal. Assume all sales are collected within the discount period.
2. a. Based on the projected income statement in (1), would you recommend the implementation of the proposed changes?
b. Describe any possible concerns you may have related to the proposed changes described in(1).

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Related Book For  answer-question

Accounting

ISBN: 978-0324401844

22nd Edition

Authors: Carl S. Warren, James M. Reeve, Jonathan E. Duchac

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