90.2K

Verified Solution

Link Copied!

Please help thank you

Amy believes the problem lies in the relatively low gross profit rate (gross profit divided by net sales) of 21%. Jacob believes the problem is that operating expenses are too high. Amy thinks the gross profit rate can be improved by making two changes for 2023 . She does not anticipate that these changes will have any effect on operating expenses. 1. Increase average selling prices by 17%. This increase is expected to lower sales volume so that total sales will increase only 6%. 2. Buy merchandise in larger quantities and take all purchase discounts. These changes to selling prices and purchasing practices are expected to increase the gross profit rate from 21% to 24%. Jacob thinks expenses can be cut by making both of the following two changes for 2023 . He feels that these changes will not have any effect on net sales or cost of goods sold. 1. Cut the 2022 sales salaries of $60,000 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 2022 delivery expenses of $30,000 by 40%. (Recall that delivery costs to customers are selling expenses). Amy and Jacob come to you for help in deciding the best way to improve net income. a. Prepare a condensed income statement for 2023, assuming (1) Amy's changes are implemented and (2) Jacob's ideas are adopted. b. What is your recommendation to Amy and Jacob? c. Prepare a condensed income statement for 2023, assuming both sets of proposed changes are made. d. Discuss the impact that other factors might have

Answer & Explanation Solved by verified expert

See Answer