Dwayne Fewis and Michael Cherry have earned well beyond the $1,000 they used to launch Damani Dada (see chapter’s opening feature). Good entrepreneurs continually rethink and refine business strategies. Assume that Damani Dada’s most recent income statement follows:

To increase income, Lewis and Cherry are proposing to offer sales discounts of 3/10, n/30, and to ship merchandise FOB shipping point. Assume that Damani Dada presently offers no discounts and ships merchandise FOB destination. The sales discounts are predicted to increase net sales by 14%, and the ratio of cost of sales divided by net sales is expected to remain unchanged. Since delivery expenses are zero under this proposal, the expenses are predicted to increase by only 10%.
Required 1. Prepare a forecasted income statement for the year ended April 30, 2006, based on this proposal.
2. Do you recommend that it implement the proposal given your analysis in part 1? Explain.
3. Identify any concerns you might express to Lewis and Cherry regarding their proposal.

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DAMANI DADA Income Statement ($ thousands) For Year Ended April 30, 2005 Net sales Cost of sales Expenses Net income $50,000 35,000 4,000 $11,000