Data for Brigus Wholesale Ltd. are presented in P5-6B.

Instructions
(a) Calculate the profit margin and gross profit margin.
(b) The vice-president of marketing and director of human resources have proposed that the company change its compensation of the sales force to a commission basis rather than paying a fixed salary. Given the extra incentive, they expect net sales to increase by 10%. They estimate that gross profit will increase by $60,000, operating expenses by $32,000, and income tax expense by $4,000. Non-operating expense is not expected to change. Calculate the expected new gross profit and profit amounts.
(c) Calculate the revised gross profit margin and profit margin, using the information you calculated in part (b). Comment on the effect that this plan would have on profitability and evaluate the merit of this proposal.

Transcribed Image Text:

BRIGUS WHOLESALE LTD Adjusted Trial Balance November 30, 2015 Debit $50,200 Credit Accounts receivable Notes receivable Merchandise inventory Supplies 71,400 120,000 204,000 Buildings Accumulated depreciation-buildings Equipment Accumulated depreciation-equipment Accounts payable Income tax payable Unearned revenue Mortgage payable Common shares Retained earnings S 34,000 48,000 97,000 31,000 6,000 102,000 60,000 180,000 1,700,600 Sales returns and allowances Sales discounts Cost of goods sold Administrative expenses Selling expenses Interest expense Interest revenue Income tax expense 8,400 7,500 1,095,000 341,340 86,200 7,400 3,240 31,000 $2,216,840 $2,261,840