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Concept explainers
Costco is the largest chain of membership warehouse clubs in the world based on sales volume, and it is the fifth largest general retailer in the United States. Costco focuses on selling products at low prices, often at a very high volume. These goods are usually bulk-packaged and marketed primarily to large families and businesses. Costco became the first company to grow from zero to $3 billion in sales in less than six years. In a recent fiscal year, Costco’s sales totaled $76.3 billion, a 29.3 percent increase from 2006, and its net income reached $1.30 billion, an 18.1 percent increase from 2006. This information, and much more, can be derived from the financial statements that merchandising firms such as Costco prepare on a regular basis to provide shareholders and other interested parties information about the company’s activities and financial performance.
- 1. What type of information would a classified income statement provide to shareholders and other interested parties?
- 2. What type of information would a classified balance sheet provide to shareholders and other interested parties? Why would this information be important for calculating the
working capital and thecurrent ratio , for example?
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Chapter 12 Solutions
College Accounting (Book Only): A Career Approach
- Swain Athletic Gear (SAG) operates six retail outlets in a large Midwest city. One is in the center of the city on Cornwall Street and the others are scattered around the perimeter of the city. Management at SAG is concerned about declining sales and profitability of the Cornwall store and believes that outlet has been a drag on profits in recent years. The most recent income statement for the Cornwall store follows. SWAIN ATHLETIC GEAR Cornwall Street Store Income Statement For the Year Ending February 28 Sales revenue $ 12,300,000 Costs Cost of goods sold $ 5,289,000 Advertising 1,421,000 Store administrative salaries 975,000 Sales commissions 1,056,000 Leases and utilities 2,100,000 Allocated corporate support 1,622,000 Total costs $ 12,463,000 Net loss before tax benefit $ (163,000) Tax benefit at 25% (40,750) Net loss $ (122,250) The CFO at SAG has asked for your advice on closing the Cornwall Street store. If the Cornwall Street store is…arrow_forwardSwain Athletic Gear (SAG) operates six retall outlets in a large Midwest city. One is in the center of the city on Cornwall Street and the others are scattered around the perimeter of the city. Management at SAG is concerned about declining sales and profitability of the Cornwall store and believes that outlet has been a drag on profits in recent years. The most recent Income statement for the Cornwall store follows. SWAIN ATHLETIC GEAR Cornwall Street Store Income Statement For the Year Ending February 28 Sales revenue Costs Cost of goods sold Advertising Store administrative salaries Sales commissions Leases and utilities Allocated corporate support Total costs Net loss before tax benefit Tax benefit at 25% Net loss The CFO at SAG has asked for your advice on closing the Cornwall Street store. If the Cornwall Street store is closed, neither total corporate support costs nor operations or costs of the other stores are expected to change. Required: a. Using the worksheet below,…arrow_forwardFortunate Inc. is involved in retailing and has three profit centers classified as “East” and “West” and “South.” East Division sold 38,000 units during the year for a selling price of $25 each—These items cost $15 each and had $2.50 of variable selling expenses (sales commissions) that could be directly traced to the units. West Division sold 16,000 units during the year for a selling price of $27 each—These items cost $17 each and that had $3 of variable selling expenses (sales commissions) that could be directly traced to the units. South Division sold 42,000 units during the year for a selling price of $26 each—These items cost $16 each and had $2 of variable selling expenses (sales commissions) that could be directly traced to the units. Fixed Division Operating Costs that could be directly traced to the divisions were $160,000 for East Division and $95,000 for West Division, and $200,000 for South Division. There were $230,000 of Corporate Costs (which was $20,000 for…arrow_forward
- Flair ranks the individual customers in the Ma and Pa single-store distribution market on the basis of monthly operating income. The cumulative operating income of the top 20% of customers is $58,120. Best Drugs reports operating losses of $23,670 for the bottom 40% of its customers. Make four recommendations that you think Best Drugs should consider in light of this new customer-profitability information.arrow_forwardThe Home Depot is a leading specialty retailer of hardware and home improvement products and is the second-largest retail store chain in the United States. It operates large warehouse-style stores. Despite declining sales and difficult economic conditions in 20X1 and 20X2, The Home Depot continued to invest in new stores. The following table provides summary hypothetical data for The Home Depot. REQUIRED a. Use the preceding data for The Home Depot to compute average revenues per store, capital spending per new store, and ending inventory per store in 20X2. b. Assume that The Home Depot will add 100 new stores by the end of Year +1. Use the data from 20X2 to project Year +1 sales revenues, capital spending, and ending inventory. Assume that each new store will be open for business for an average of one-half year in Year +1. For simplicity, assume that in Year +1, Home Depots sales revenues will grow, but only because it will open new stores.arrow_forwardReady Electronics is facing stiff competition from imported goods. Its operating income margin has been declining steadily for the past several years. The company has been forced to lower prices so that it can maintain its market share. The operating results for the past 3 years are as follows: Year 1 Year 2 Year 3 Sales 14,500,000 9,500,000 9,000,000 Operating income 1,200,000 1,145,000 945,000 Average assets 15,000,000 15,000,000 16,750,000 For the coming year, Ready's president plans to install a JIT purchasing and manufacturing system. She estimates that inventories will be reduced by 70% during the first year of operations, producing a 20% reduction in the average operating assets of the company, which would remain unchanged without the JIT system. She also estimates that sales and operating income will be restored to Year 1 levels because of simultaneous reductions in operating expenses and selling prices. Lower selling prices will allow Ready to expand its market share. 1.…arrow_forward
- Burdeno Appliances has two divisions, Sales and Financing. Sales is responsible for selling Burdeno's inventory and maintaining inventory for future sale. Financing Division takes loan applications, packages loans into pools, and sells them in the financial markets. It also services the loans. Both divisions meet the requirements for segment disclosures under accounting rules. Sales Division had $8 million in sales last year. Costs, other than those charged by Financing Division, totaled $6 million. Financing Division earned revenues of $2.5 million from servicing loans and incurred outside costs of $3 million. In addition, Financing charged Operations $900,000 for loan-related fees. Sales' manager complained to corporate that Financing was charging 150 percent of the commercial rate for loan-related fees and that Sales would be better off sending its buyers to an outside lender Financing's manager replied that although commercial rates could be lower, servicing these loans is more…arrow_forwardThe Eagle Machine Company averaged $2 million in inventory last year, and the cost of goods sold was $10 million. Figure shows the breakout of raw materials, work-in-process, and finished goods inventories. The best inventory turnover in the company’s industry is six turns per year. If the company has 52 business weeks per year, how many weeks of supply were held in inventory? What was the inventory turnover? What should the company do?arrow_forwardBurdeno Appliances has two divisions, Sales and Financing. Sales is responsible for selling Burdeno's inventory and maintaining inventory for future sale. Financing Division takes loan applications, packages loans into pools, and sells them in the financial markets. It also services the loans. Both divisions meet the requirements for segment disclosures under accounting rules. Sales Division had $9 million in sales last year. Costs, other than those charged by Financing Division, totaled $7 million. Financing Division earned revenues of $2.6 million from servicing loans and incurred outside costs of $3.1 million. In addition, Financing charged Operations $900,000 for loan-related fees. Sales' manager complained to corporate that Financing was charging 150 percent of the commercial rate for loan-related fees and that Sales would be better off sending its buyers to an outside lender. Financing's manager replied that although commercial rates could be lower, servicing these loans more…arrow_forward
- Gadubhaiarrow_forwardQT, Inc. and Elppa Computers, Inc. compete with each other in the personal computer market. QT assembles computers to customer orders, building and delivering a computer within four days of a customer entering an order online. Elppa, on the other hand, builds computers for inventory prior to receiving an order. These computers are sold from inventory once an order is received. Selected financial information for both companies from recent financial statements follows (in millions): QT Elppa Sales $35,040 $46,400 Cost of goods sold 29,200 43,800 Inventory, beginning of period 932 4,028 Inventory, end of period 1,132 4,828 a. Determine for both companies (1) the inventory turnover and (2) the number of days' sales in inventory. Round your calculations and answers to one decimal place. Assume 365 days a year. (refer to image) b. QT has a ______ (higher/lower) inventory turnover ratio than does Elppa Company. Likewise, QT has a _____ (larger/smaller) number…arrow_forwardFRANCORP is a large retailer of automobiles floor mats. An income statement for the most recent quarter is presented below: FRANCORP Income Statement-Automobile Floor Mat Division For First Quarter of Current Year Sales $927,500 Less cost of goods sold Gross margin Less operating expenses: 275,000 652,500 Selling expenses $205,500 Administrative 280,000 485,500 expenses Net income $167,000 The liners sell, on average, for $350 each. The department's variable selling expenses are $35 per liner sold. The remaining selling expenses are fixed. The administrative expenses are 35% variable and 65% fixed. The company purchases its floor mats from a supplier at a cost of $125 per mat. Cost of Goods Sold is 50% variable. Determine the total variable cost per unit. O $137.81 O $153.99 O $123.87 O $145.08arrow_forward
- College Accounting (Book Only): A Career ApproachAccountingISBN:9781305084087Author:Cathy J. ScottPublisher:Cengage LearningCollege Accounting (Book Only): A Career ApproachAccountingISBN:9781337280570Author:Scott, Cathy J.Publisher:South-Western College PubFinancial Reporting, Financial Statement Analysis...FinanceISBN:9781285190907Author:James M. Wahlen, Stephen P. Baginski, Mark BradshawPublisher:Cengage Learning
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