Suzi Nomro operates Watercraft Supply Company, an online boat parts distributorship that is in its third year of operation. The following income statement was prepared for the year ended October 31, 2019. Watercraft Supply Company Income Statement For the Year Ended October 31, 2019 Revenues: Sales $1,350,000 Interest 15,000 Total revenues $1,365,000 Expenses: Cost of merchandise sold $810,000 140,000 Selling expenses Administrative expenses 90,000 Interest expense.... Total expenses. 4,000 1,044,000 $ 321,000 Net income.. Suzi 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 dis- counts are allowed and merchandise is shipped FOB destination. It is estimated that the new terms will increase sales by 10%. The ratio of the cost of merchandise sold to sales is expected to be 60%. All selling and administrative expenses are expected to remain unchanged, except for store supplies and miscellaneous selling expenses, which are ex- pected to increase proportionately with increased sales. The amounts of these items for the year ended October 31, 2019, were as follows: Store supplies expense Miscellaneous selling expenses $12,000 6,000 The interest revenue and expense items will remain unchanged. The shipment of all merchandise FOB shipping point will eliminate all delivery expenses, which for the year ended October 31, 2019, were $12,000. (Continued) -Write a brief memo to Suzi discussing the potential benefits and limitations of this proposal. Include a determination of the net income that Watercraft Supply could generate next year under the new proposal, assuming that all sales are collected within the discount period.
Suzi Nomro operates Watercraft Supply Company, an online boat parts distributorship that is in its third year of operation. The following income statement was prepared for the year ended October 31, 2019. Watercraft Supply Company Income Statement For the Year Ended October 31, 2019 Revenues: Sales $1,350,000 Interest 15,000 Total revenues $1,365,000 Expenses: Cost of merchandise sold $810,000 140,000 Selling expenses Administrative expenses 90,000 Interest expense.... Total expenses. 4,000 1,044,000 $ 321,000 Net income.. Suzi 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 dis- counts are allowed and merchandise is shipped FOB destination. It is estimated that the new terms will increase sales by 10%. The ratio of the cost of merchandise sold to sales is expected to be 60%. All selling and administrative expenses are expected to remain unchanged, except for store supplies and miscellaneous selling expenses, which are ex- pected to increase proportionately with increased sales. The amounts of these items for the year ended October 31, 2019, were as follows: Store supplies expense Miscellaneous selling expenses $12,000 6,000 The interest revenue and expense items will remain unchanged. The shipment of all merchandise FOB shipping point will eliminate all delivery expenses, which for the year ended October 31, 2019, were $12,000. (Continued) -Write a brief memo to Suzi discussing the potential benefits and limitations of this proposal. Include a determination of the net income that Watercraft Supply could generate next year under the new proposal, assuming that all sales are collected within the discount period.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Suzi Nomro operates Watercraft Supply Company, an online boat parts distributorship
that is in its third year of operation. The following income statement was prepared for
the year ended October 31, 2019.
Watercraft Supply Company
Income Statement
For the Year Ended October 31, 2019
Revenues:
Sales
$1,350,000
Interest
15,000
Total revenues
$1,365,000
Expenses:
Cost of merchandise sold
$810,000
140,000
Selling expenses
Administrative expenses
90,000
Interest expense....
Total expenses.
4,000
1,044,000
$ 321,000
Net income..
Suzi 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 dis-
counts are allowed and merchandise is shipped FOB destination. It is estimated that the
new terms will increase sales by 10%. The ratio of the cost of merchandise sold to sales
is expected to be 60%. All selling and administrative expenses are expected to remain
unchanged, except for store supplies and miscellaneous selling expenses, which are ex-
pected to increase proportionately with increased sales. The amounts of these items for
the year ended October 31, 2019, were as follows:
Store supplies expense
Miscellaneous selling expenses
$12,000
6,000
The interest revenue and expense items will remain unchanged. The shipment of all
merchandise FOB shipping point will eliminate all delivery expenses, which for the year
ended October 31, 2019, were $12,000.
(Continued)
Transcribed Image Text:-Write a brief memo to Suzi discussing the potential benefits and limitations of
this proposal. Include a determination of the net income that Watercraft Supply could
generate next year under the new proposal, assuming that all sales are collected within
the discount period.
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