Exhibit 4.22 presents selected operating data for three retailers for a recent year. Macy’s operates several department store chains selling consumer products such as brand-name clothing, china, cosmetics, and bedding and has a large presence in the bridal and formalwear markets (under store names Macy’s and Bloomingdale’s). Home Depot sells a wide range of building materials and home improvement products, which includes lumber and tools, riding lawn mowers, lighting fixtures, and kitchen cabinets and appliances. Supervalu operates grocery stores under numerous brands (including Albertsons, Cub Foods, Jewel-Osco, Shaw’s, and Star Market).
Exhibit 4.22
REQUIRED
- a. Compute the rate of
ROA for each firm. Disaggregate the rate of ROA into profit margin for ROA and assets turnover components. Assume that the income tax rate is 35% for all companies. - b. Based on your knowledge of the three retail stores and their respective industry concentrations, describe the likely reasons for the differences in the profit margins for ROA and assets turnovers.
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Chapter 4 Solutions
Financial Reporting, Financial Statement Analysis and Valuation
- Show-Off, Inc., sells merchandise through three retail outlets-in Las Vegas, Reno, and Sacramento-and operates a general corporate headquarters in Reno. A review of the company's income statement indicates a record year in terms of sales and profits. Management, though, desires additional insights about the individual stores and has asked that Judson Wyatt, a newiy hired intern, prepare a segmented income statement. The following information has been extracted from Show-Off's accounting records: • The sales volume, sales price, and purchase price data follow: Reno Sacramento Las Vegas 37,100 units $ 19.00 8.75 Sales volume Unit selling price Unit purchase price 41, 100 units $ 17.50 8.75 46, 040 units $ 15.25 9.75 •The following expenses were incurred for sales commissions, local advertising, property taxes, management salaries, and other noncontrollable (but traceable) costs: Reno Las Vegas 5% Sacramento 5% Sales commissions 5% Local advertising Local property taxes Sales manager…arrow_forwardShow-Off, Inc., sells merchandise through three retail outlets-in Las Vegas, Reno, and Sacramento-and operates a general corporate headquarters in Reno. A review of the company's income statement indicates a record year in terms of sales and profits. Management, though, desires additional insights about the individual stores and has asked that Judson Wyatt, a newly hired intern, prepare a segmented income statement. The following information has been extracted from Show-Off's accounting records: The sales volume, sales price, and purchase price data follow: Las Vegas Reno Sacramento 37,000 units 41,000 units 46,000 units Sales volume Unit selling $ 12.00 price Unit purchase 5.50 price salary Store manager salaries Other noncontrollable The following expenses were incurred for sales commissions, local advertising, property taxes, management salaries, and other noncontrollable (but traceable) costs: costs $11.00 Sales commissions Local advertising $11,000 $22,000 Local property 4,500…arrow_forwardShow-Off, Inc., sells merchandise through three retail outlets-in Las Vegas, Reno, and Sacramento-and operates a general corporate headquarters in Reno. A review of the company's Income statement Indicates a record year in terms of sales and profits. Management, though, desires additional Insights about the Individual stores and has asked that Judson Wyatt, a newly hired Intern, prepare a segmented Income statement. The following Information has been extracted from Show-Off's accounting records: ⚫ The sales volume, sales price, and purchase price data follow: Sales volume Unit selling price Unit purchase price Las Vegas 37,400 units Reno $ 22.00 10.25 41,400 units $ 20.50 10.25 Sacramento 46,160 units $ 18.25 12.00 • The following expenses were incurred for sales commissions, local advertising, property taxes, management salaries, and other noncontrollable (but traceable) costs: Sales commissions Las Vegas 8% Reno 8% Sacramento 8% Local advertising $16,900 Local property taxes Sales…arrow_forward
- DURAPLAST Company Ltd., opened its doors in 1979 as a wholesale supplier of plumbing equipment, tools, and parts to hardware stores, home-improvement centers, and professional plumbers in the Accra-Tema Metropolitan area. Over the years they have expanded their operations to serve customers across the nation and now employ over 200 people as technical representatives, buyers, warehouse workers, and sales and office staff. Most recently DURAPLAST has experienced fierce competition from the large online discount stores such as Qualiplast and Interplast. In addition, the company is suffering from operational inefficiencies related to its archaic information system. DURAPLAST’s revenue cycle procedures are described in the following paragraphs. Revenue Cycle DURAPLAST’s sales department consists of 17 full-time and part-time employees. They receive orders via traditional mail, e-mail, telephone, and the occasional walk-in. Because DURAPLAST is a wholesaler, the vast majority of its…arrow_forwardDURAPLAST Company Ltd., opened its doors in 1979 as a wholesale supplier of plumbing equipment, tools, and parts to hardware stores, home-improvement centers, and professional plumbers in the Accra-Tema Metropolitan area. Over the years they have expanded their operations to serve customers across the nation and now employ over 200 people as technical representatives, buyers, warehouse workers, and sales and office staff. Most recently DURAPLAST has experienced fierce competition from the large online discount stores such as Qualiplast and Interplast. In addition, the company is suffering from operational inefficiencies related to its archaic information system. DURAPLAST’s revenue cycle procedures are described in the following paragraphs. Revenue Cycle DURAPLAST’s sales department consists of 17 full-time and part-time employees. They receive orders via traditional mail, e-mail, telephone, and the occasional walk-in. Because DURAPLAST is a wholesaler, the vast majority of its…arrow_forwardBURTS BEES, Durham, North Carolina Burts Bees describes itself as an Earth-Friendly, Natural Personal Care Company that produces products for health, beauty, and personal hygiene. The company manufactures over 150 products distributed in nearly 30,000 retail outlets worldwide. As a merchandising company, Burts Bees follows its inventory closely. This requires monitoring the receipt, production, purchasing, and planning of inventory. At the end of each time period, Burts Bees must make adjusting entries to prepare its financial statements accurately. Many of the adjustments are entries you have already learned, such as depreciation, expiration of prepaid expenses, adjustment of supplies used, and recording of accrued expenses. However, merchandising companies also require adjusting entries related to merchandise inventory. Companies such as Burts Bees monitor inventory, prepare a worksheet, and record adjusting entries using either the perpetual or periodic inventory system. Using your book and/or conducting a brief Internet search to find the differences between perpetual and periodic inventory systems, answer the following questions: 1. What type of inventory system do you think Burts Bees uses? Why? 2. Using the inventory system you selected in no. 1, what is an example of the type of journal entry Burts Bees would make when purchasing merchandise on account? 3. Using the inventory system you selected in no. 1, what journal entry would Burts Bees use to record the sale of merchandise on account?arrow_forward
- Jodi's Chop Shop is a retail chain specializing in salon-quality hair-care products. During the year, Jodi's Chop Shop had sales of $39,235,000. The company began the year with $3,500,000 of merchandise inventory and ended the year with $4,445,000 of inventory. During the year, Jodi's Chop Shop purchased $24,215,000 of merchandise inventory. The company's selling, general, and administrative expenses totaled $7,185,000 for the year. Prepare Jodi's Chop Shop's income statement for the year. Begin by calculating Jodi's Chop Shop's cost of goods sold using the table below. Jodi's Chop Shop Calculation of Cost of Goods Sold For the Year Ended Beginning inventory Purchases Plus: Cost of goods available for sale Less: Ending inventory Cost of goods soldarrow_forwardABC is an online-to-offline platform that sells e-commerce products to offline customers through a network of agents. ABC gives a commission to agents for each sale made. ABC has 4 main product categories: electronics, fashion, supermarket, and others. Please refer to the exhibits for data sets pertaining to the questions below. Today is May 16th. 1. What is the average growth in average sales per agent per month from March to May target? Answer: %2. Which one is the category with the highest and lowest average month-on- month sales growth from March to May target? Answer: Highest: Lowest:3. Today is May We have got the interim result of the sales figures in the first half of May. Typically, the first half of the month constitutes of 40% of sales. Using this assumption, will we reach our May target? What % over the target will we over/under-deliver? Answer: under/over-deliver by % of target4. Using that assumption, which category (or categories) will not reach the targeted sales…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_forward
- Posavek is a wholesale supplier of building supplies building contractors, hardware stores, and home-improvement centers in the Boston metropolitan area. Over the years, Posavek has expanded its operations to serve customers across the nation and now employs over 200 people as technical representatives, buyers, warehouse workers, and sales and office staff. Most recently, Posavek has experienced fierce competition from the large online discount stores. In addition, the company is suffering from operational inefficiencies related to its archaic information system. Posavek revenue cycle procedures are described in the following paragraphs. Revenue Cycle Posaveks sales department representatives receive orders via traditional mail, e-mail, telephone, and the occasional walk-in customer. Because Posavek is a wholesaler, the vast majority of its business is conducted on a credit basis. The process begins in the sales department, where the sales clerk enters the customers order into the centralized computer sales order system. The computer and file server are housed in Posaveks small data processing department. If the customer has done business with Posavek in the past, his or her data are already on file. If the customer is a first-time buyer, however, the clerk creates a new record in the customer account file. The system then creates a record of the transaction in the open sales order file. When the order is entered, an electronic copy of it is sent to the customers e-mail address as confirmation. A clerk in the warehouse department periodically reviews the open sales order file from a terminal and prints two copies of a stock release document for each new sale, which he uses to pick the items sold from the shelves. The warehouse clerk sends one copy of the stock release to the sales department and the second copy, along with the goods, to the shipping department. The warehouse clerk then updates the inventory subsidiary file to reflect the items and quantities shipped. Upon receipt of the stock release document, the sales clerk accesses the open sales order file from a terminal, closes the sales order, and files the stock release document in the sales department. The sales order system automatically posts these transactions to the sales, inventory control, and cost-of-goods-sold accounts in the general ledger file. Upon receipt of the goods and the stock release, the shipping department clerk prepares the goods for shipment to the customer. The clerk prepares three copies of the bill of lading. Two of these go with the goods to the carrier and the third, along with the stock release document, is filed in the shipping department. The billing department clerk reviews the closed sales orders from a terminal and prepares two copies of the sales invoice. One copy is mailed to the customer, and the other is filed in the billing department. The clerk then creates a new record in the accounts receivable subsidiary file. The sales order system automatically updates the accounts receivable control account in the general ledger file. CASH RECEIPTS PROCEDURES Mail room clerks open customer cash receipts, reviews the check and remittance advices for completeness, and prepares two copies of a remittance list. One copy is sent with the checks to the cash receipts department. The second copy of the remittance advices are sent to the billing department. When the cash receipts clerk receives the checks and remittance list, he verifies the checks received against those on the remittance list and signs the checks For Deposit Only. Once the checks are endorsed, he records the receipts in the cash receipts journal from his terminal. The clerk then fills out a deposit slip and deposits the checks in the bank. Upon receipt of the remittances, the billing department clerk records the amounts in the accounts receivable subsidiary ledger from the department terminal. The system automatically updates the AR control account in the general ledger Posavek has hired your public accounting firm to review its sales order procedures for internal control compliance and to make recommendations for changes. Required a. Create a data flow diagram of the current system. b. Create a system flowchart of the existing system. c. Analyze the physical internal control weaknesses in the system. d. (Optional) Prepare a system flowchart of a redesigned computer-based system that resolves the control weaknesses that you identified. Explain your solution.arrow_forwardHeavenly Chocolates manufactures and sells quality chocolate products at its plant and retail store located in Saratoga Springs, New York. Two years ago, the company developed a web site and began selling its products over the Internet. Web-site sales have exceeded the company’s expectations, and management is now considering strategies to increase sales even further. To learn more about the web-site customers, a sample of 50 Heavenly Chocolate transactions was selected from the previous month’s sales. Data showing the day of the week each transaction was made, the type of browser the customer used, the time spent on the web site, the number of web pages viewed, and the amount spent by each of the 50 customers are contained in the file named Heavenly Chocolates. A portion of the data is shown in the table that follows: Heavenly Chocolates would like to use the sample data to determine whether online shoppers who spend more time and view more pages also spend more money during their visit to the web site. The company would also like to investigate the effect that the day of the week and the type of browser have on sales. Managerial Report Use the methods of descriptive statistics to learn about the customers who visit the Heavenly Chocolates web site. Include the following in your report. Graphical and numerical summaries for the length of time the shopper spends on the web site, the number of pages viewed, and the mean amount spent per transaction. Discuss what you learn about Heavenly Chocolates’ online shoppers from these numerical summaries. Summarize the frequency, the total dollars spent, and the mean amount spent per transaction for each day of week. Discuss the observations you can make about Heavenly Chocolates’ business based on the day of the week? Summarize the frequency, the total dollars spent, and the mean amount spent per transaction for each type of browser. Discuss the observations you can make about Heavenly Chocolates’ business based on the type of browser? Develop a scatter diagram, and compute the sample correlation coefficient to explore the relationship between the time spent on the web site and the dollar amount spent. Use the horizontal axis for the time spent on the web site. Discuss your findings. Develop a scatter diagram, and compute the sample correlation coefficient to explore the relationship between the number of web pages viewed and the amount spent. Use the horizontal axis for the number of web pages viewed. Discuss your findings. Develop a scatter diagram, and compute the sample correlation coefficient to explore the relationship between the time spent on the web site and the number of pages viewed. Use the horizontal axis to represent the number of pages viewed. Discuss your findings.arrow_forwardABC is an online-to-offline platform that sells e-commerce products to offline customers through a network of agents. ABC gives a commission to agents for each sale made. ABC has 4 main product categories: electronics, fashion, supermarket, and others. Please refer to the exhibits for data sets pertaining to the questions below. Today is May 16th. What is the average growth in average sales per agent per month from March to May target? Answer:..... % Which one is the category with the highest and lowest average month-on-month sales growth from March to May target? Answer: Highest : .......... Lowest:............. Today is 16th May We have got the interim result of the sales figures in the first half of May. Typically, the first half of the month constitutes of 40% of sales. Using this assumption, will we reach our May target? What % over the target will we over/under-deliver? Answer: under/over-deliver by ......... % of target Using that assumption, which…arrow_forward
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