12. (3 Pts) Bob is troubled by your news, but has an idea. He is convinced the store manager is not cutout for sales and estimates that they lose one out of every three customers who come into the store. He is confident hiring retail help would lead to an increase in sales of $50,000. He estimates that he would have to pay $20,000 a year. Should he do this and why? 13. (3 Pts) Bob laments that his ultimate goal is a return on the investment he made when he bought the business. Bob would like to net $25,000 per year in profits. If he doesn't hire the retail help, what would sales have to equal in order to achieve his goal? 14. (2 Pts) The gross margin average for NAICS 446130 Optical Goods Stores establishments primarily engaged in retailing prescription eyeglasses in combination with the grinding of lenses to order on the premises - is 60%. What would best explain the low gross margin in Bob's store? a. Inventory turns are 1.8 times and the industry average is 4.8. b. Advertising expense as a percentage of sales is well below average. c. The store manager is stealing cyeglass frames and selling them on Ebay. d. The store manager is not completing a credit report for all new customers. 15. (2 Pts) Disregard the previous financial information. If fixed costs are $120,000 and the average frames sell for $500 on costs of $300 and Bob sold approximately 400 frames last year, what impact would a 10% increase in pricing have on the business? a. The store would break even at 500 instead of 600 frames. b. The volume must increase 20% to break even. c. The volume can decrease 20% to break even. d. None of the above 10. (3 Pts) If the seller pays himself $200,000 as CEO and you plan to pay yourself $100,000 upon buying the business, calculate the projected net profit margin under your ownership. Is this better or worse than the industry average? Make sure to show your work. While obtaining your M.B.A., you decide to contract part-time with the Washburn Small Business Development Center. Your first client (Bob) is losing money and requests your help trying to figure out what is wrong financially. Bob owns a retail store specializing in designer eyeglass frames. Upon entering the store, customers are met by a store manager who helps the customer select and fit a frame. The store manager is on salary. Once an order is placed, a technician makes the lenses in a small lab located onsite. The technician works only as needed making orders. He was paid $16,000 in the past year. Bob incurs extra expenses for the lab only when it is in use, including extra utilities and supplies of approximately $500 per month. Cost of good sold reflects the direct materials used in making the lenses and cost of frames. Frames are usually completed within 2 days for pickup. Selected accounts for the income statement for the most recent year is as follows: 11. (5 Pts) Calculate break-even for Bob. Show your work. 12. (3 Pts) Bob is troubled by your news, but has an idea. He is convinced the store manager is not cutout for sales and estimates that they lose one out of every three customers who come into the store. He is confident hiring retail help would lead to an increase in sales of $50,000. He estimates that he would have to pay $20,000 a year. Should he do this and why? 13. (3 Pts) Bob laments that his ultimate goal is a return on the investment he made when he bought the business. Bob would like to net $25,000 per year in profits. If he doesn't hire the retail help, what would sales have to equal in order to achieve his goal? 14. (2 Pts) The gross margin average for NAICS 446130 Optical Goods Stores establishments primarily engaged in retailing prescription eyeglasses in combination with the grinding of lenses to order on the premises - is 60%. What would best explain the low gross margin in Bob's store? a. Inventory turns are 1.8 times and the industry average is 4.8. b. Advertising expense as a percentage of sales is well below average. c. The store manager is stealing cyeglass frames and selling them on Ebay. d. The store manager is not completing a credit report for all new customers. 15. (2 Pts) Disregard the previous financial information. If fixed costs are $120,000 and the average frames sell for $500 on costs of $300 and Bob sold approximately 400 frames last year, what impact would a 10% increase in pricing have on the business? a. The store would break even at 500 instead of 600 frames. b. The volume must increase 20% to break even. c. The volume can decrease 20% to break even. d. None of the above
