Assessing Inflationary Effects (LO2, 5)

The president of Townville Office Products is pleased with the progress her company has made in recent years, but she cannot understand why the company is always having to borrow funds when sales continually increase. Her office staff is small, and the largest cost outside of merchandise inventory is sales commissions, which are 20 percent of sales. As the cost of merchandise changes, she continually changes retail prices. Thus, she believes the profit margin should remain near the same percentage level for each period. However, even with her best efforts, the company continues to experience cash shortages. After gathering financial data, you prepare the following set of information for the past four years:

2009 2010 2011 2012 SIGS. oo b Aa Sue tes EL eee $240,000 $252,000 $264,600 $277,830 Wostonqoodsisoldrmrmastisunsnieane : $150,000 $159,000 $168,540 $178,652 Glbromticatl ogre meee ckursstiriceeamsae 1.46 1.34 123 1.14 INVEMtOnyMURMOVE rye ners ceeisoutn a 4.66 4.65 4.67 4.66 THE WTO VEWESS Gauls oie a ines Mirae ce 6.00% 6.00% 6.00% 6.00%

Required What conclusions can be drawn about the operating condition of Townville Office Products? Explain. LO.1