80.2K

Verified Solution

Link Copied!

Three years ago, Karen Suez and her brother$-$in$-$law Reece Jones opened Splish Brothers Company. For the first two years, business was good, but the following condensed income results for $2022$ were disappointingSplish Brothers CompanyIncome StatementFor the Year Ended December $31,2022$Net sales$$760,000$Cast of goods sold$608,000$Gross proft$152,000$Operating expensesSelling expenses$$90,000$Administrative expenses$18,000108,000$Net income$$44,000$Karen believes the problem lies in the relatively low gross profit rate $($gross profit divided by net sales$)$ of $20\%.$ Reece believes the problem is that operating expenses are too high.Karen thinks the gross profit rate can be improved by making two changes. She does not anticipate that these changes will have any effect on operating expenses$\mathrm{.}1$ Increase average selling prices by $15\%$ This increase is expected to lower sales volume so that total sales will increase only$4\%\mathrm{.}2.$ Buy merchandise in larger quantities and take all purchase discounts. These changes to selling prices and purchasing practices are expected to increase the gross profit rate from $20\%$ to a new rate of $25\%.$Reece thinks expenses can be cut by making these two changes. He feels that these changes will not have any effect on net sales$\mathrm{.}1.$ Cut $2023$ sales salaries of $$60,000$ in half and give sales personnel a commission of $2\%$ of net sales$\mathrm{.}2$ Reduce store deliveries to one day per week rather than twice a week. This change will reduce $2023$ delivery expenses of $$40,000$ by $40\%6.$Karen and Reece come to you for help in deciding the best way to improve net income.

Answer & Explanation Solved by verified expert

See Answer