ACT 101 Assignment

ACT 101

East West University Assignment – 1 Course Title: Financial Accounting Course Code: Act 101

Submitted To: Muhammad Zahirul Islam Senior Lecturer Department Of Business Administration East West University

Submitted By: Marufa Jahan Writu Sen Nusrat Jahan Sarah Tasnime Nahid Hasan

Id: 2006-3-10-059 Id: 2008-2-10-106 Id: 2008-2-10-107 Id: 2008-2-10-110 Id: 2008-2-10-224

Department Of Business Administration East West University

Submission Date: August 5,2009

ACT 101

Debbie changes are implemented: FEDCO DEPARTMENT STORE Income Statement For the year ended December 31, 2005 Net Sales Less: Cost of Goods sold Gross Profit

$ 756,000 539,000 $ 217,000

Less: Operating Expenses: Selling Expenses Administrative Expenses Net Income

$ 100,000 20,000

120,000 $ 97,000

Workings: 1. Total sales will increases by 8% for selling price increases by 17%.  Total Sales will increase = $ 700,000 * 8% Net Sales

= $ 56,000 = $ 700,000 + $ 56,000 = $ 756,000

2. Gross Profit rate will increase by 3% Gross Profit rate will be

= (20+3) % = 23%

∴

Gross Profit ×100 = 23 Net Sales

⇒

Gross Profit ×100 = 23 700,000

⇒

Gross Profit = 23 7,000

⇒Gross Profit =7,000 ×23

⇒Gross Profit =161,000

ACT 101 Gross Profit = Net Sales – Cost of Goods Sold

⇒ Cost of Goods Sold = Net Sales – Gross Profit = $ 700,000 – 161,000 = $ 539,000

Mike’s Ideas are adopted: FEDCO DEPARTMENT STORE Income Statement For the year ended December 31, 2005 Net Sales Less: Cost of Goods sold Gross Profit Less: Operating Expenses: Selling Expenses: Salaries Expenses Sales Commission Delivery Expenses Administrative Expenses Net Income

$ 700,000 560,000 $ 140,000

$ 30,000 14,000 24,000 20,000

88,000 $ 52,000

ACT 101

Workings: 1. Cut 2004 sales salaries of $ 60,000 in half. Salaries Expense = $ 60,000/2 = $ 30,000 Give sales personnel a commission of 2 % of net sales. Sales Commission = Total Sales x 2% = $ 700,000 x 2% = $ 14,000 2. Reduced Delivery Expenses by 40% of $ 40,000 = $ 40,000 x 40% = $ 16,000 So, Delivery Expenses = $ (40,000 – 16000) = $ 24,000

B)

Our Recommendation:

According to Debbie, According to Debbie’s thinking we can see that he wants to increase the average selling price by 17%. So the higher the price the lower the demand, this increase is expected to lower sales volume might reduce the total sales. Even though, the total sales will increase by 8%. But in condition, the average selling price will be a bit more than usual so if there is any competitor in the market or there is any alternate product, the total sales might not increase that much that he thought. So Debbie should increase the average selling price less than 17% and it might increase the total sales more than 8%. And if he wants to buy merchandise in lager quantity and take all purchase discounts. These changes are expected to increase the gross profit rate by 3% and it will be 23%. If the gross profit rate increase, the gross profit will increase and if gross profit increase the cost of goods sold will decrease.

ACT 101 On the other hand if we consider Debbie’s both ideas we can see that net sales is increasing and cost of goods sold is decreasing. Gross rate will increase more than 23%. 217 ,000 ×100 Gross profit rate = 756 ,000 = 28 .70 %

According to Mike, He wants to cut the salary of the sales employees and give them a commission of 2%. It has both positive and negative effect. Such as some of the employee will do better they can increase the sales but some of the employee who is not skilled can not increase the sales. One hand it is a good idea though it can decrease salaries expenses. That the reason the overall expenses are goes down. And if the delivery reduces to one day per week rather than twice a week it can reduce the delivery expense by 40%. That the reason net income will increase then before. So our recommendation to Debbie and Mike is that; if they implement both of their ideas then the net income will increase $20,000 to $129,000. So they should go for both ideas. If they merge those ideas then they can achieve as they had before. Implementing Both, As we see, the ideas individually do not affect much that they want. But if they go with their both of the ideas then they can profit more than they receive now. And it will be cover as they earn first. We can give advice that they should go with the both of those ideas. Because individual implement could not do much for them. And it only affect if they merge those two plans. So our recommendation is that, they can do better if they think about our advice and start doing business with those two.

Both Sets of proposed changes are made: FEDCO DEPARTMENT STORE Income Statement For the year ended December 31, 2005 Net Sales Less: Cost of Goods sold Gross Profit

$ 756,000 539,000 $ 217,000

ACT 101

Less: Operating Expenses: Selling Expenses: Salaries Expenses Sales Commission Delivery Expenses Administrative Expenses Net Income

$ 30,000 14,000 24,000 20,000

88,000 $ 129,000

Note: As we recommend, we can see if we go with both ideas the profit margin will increase more then the single implement. So its will be best for their Department Store.