Actual Warehouse X Income Statement Warehouse X: 12/31/08 Income Statement Dec'08 FY'08 Dec'Da FY'08 Dec'07 Current Actual Budget FY'07 YTD Prior Current Prior Month YTO Yearly Buda Buda Yearly Yr. Cur Month YE YID Yearly Gross Sales 475,000 7,695,632 418,554 8,526,657 335,675 7,105,556 Sales Disc. & Allow. Customer Rebates -42,000 -0.84% -73,222 -0.93% -1,000 -0.34% -6,500 -0.00% -2,500 -0.7415 -22,500 -0.37% Sales Adjustments -5.100 -1.07% -61,000 -0.77% -500 -0.12%% -12,000 -0.14%% -1,235 -0.37% -23,467 0 33% Credit card Fees 4.800 -1.014 78,000 0.974% -2,092 -42,633 1,676 -35.527 Tot Sales Disc & Allow -51,900 -10.0396 -212,222 -2.69% -3,592 -0-8576 -61,133 -0.72% -5.413 -1.61% -81, 494 -1.15%% Net Sales 423,100 100.00%% 7,683,410 105.00%% 414,962 100.00% 8,465,534 100.0014 330,252 190.00% 7,024,062 100.09% Cost of Sales COGS 361, 451 854396 6,045,234 79.60% 321,595 77.50%6 6, 510,611 70.91% 257,604 78.00% 5,494,368 78.23 Warranty 110 0.03%% 1,090 0.019% 500 0.1216 5,000 0.06% 5,000 1.51%% 10,000 014% Inventory Adjusts 56,000 13.24%6 63,500 0.83% 1,000 0.24% 12,000 0.14% 5,250 1.59% 27 845 0,40% Vendor Rebates -21, 115 -4.9996 -384,171 -5.00% -20,927 -426,333 -5.04% -15,105 -4.57% -319.750 -4.55% Freight In Expense 3,000 0.7191 62,150 4.000 0.96%% 42,000 16,234 4.92% 36,786 0524 Total Cost of Sales 399,446 94.416 5,787,803 75.304 306.168 73.789% 6,143,276 72.5796 268,983 01.454 5,249,249 74.73 Gross Profit 23,654 5.596 1,895,607 24.674 108,794 26.22% 2,322,256 27.43% 61,279 18.55% 1.774,813 25.274 Selling & Operating Expenses Total Salary Expense 29,875 7.069% 585,431 7.62% 28,765 6.93% 565,871 6.60% 27,856 8.449% 522,517 7.44% 25,099 299,865 3.90% 25,677 6.19% 325.675 3.85% 23,457 7.10% 295,019 4.2014 Admin Expense . 5.939% Freight Out Expense 7,452 1.76%% 134.600 1.75%% 7,500 125,434 1.48% 7.643 2.319% 96,494 1.379% Total Sell & Oper Exper 62,426 14 759% 1,019,896 13.27% 61,942 14 935 1,016,980 12.01% 58,966 17 85%% 914,030 1301% Operating Income 875,711 11.40% 46,852 11.29%% 1,305,276 15.42% 2,313 0.7015 860,783 12.25% -38,772 -9.1695Warehouse X Income Statement Questions What kind of year did Warehouse X have? Versus budget? Versus last year? What entries tell you that Warehouse X delivered poor service to customers in 2006? 3. Warehouse X delivered $7.683.410 in sales for 2008. X missed budget, but grew sales by almost 10%% over 2007 of $7,024.062. Warehouse X increased sales by over $500,000 from 2007, but only added an additional $15,000 in operating income versus 2007. Wouldn't you expect a $600,000 sales increase to generate better in 20077 more than $15,000 in incremental operating income? What happened? What areas did Warehouse X manage 4. What might be some possible explanations for the huge sales increase in December '08? 5. Warehouse X lost money in December, -$38,772. X had sales of $423,000 in December that beat budgeted sales of $414,962 and "crushed" last December's sales of $330,262. So how In the world could Warehouse X lose money? Last December's operating income was $2,313 on much less sales. What's going on? 6. If Warehouse X had achieved its budgeted "Total Selling & Operating Expense" percentage (look at the entries in the "percentage of sales" column), how much additional operating income would that have generated for the business in 2008? 7. In many cases a budgeted line item is not a prescription (Le. Corporate dictate), but an estimate by the Manager and his/her team regarding expected costs in the upcoming year. What line items did the Manager of Warehouse X significantly underestimate? Do you think that he she used good reasoning in setting the budget number based on actual expenses in 2007? What factor could no one accurately predict going into 2008?8. Do you think the FY (full year) budgeted "Total Selling & Operating Expense" increase over the 2007 FY actual Total Selling & Operating Expense was reasonable given the budgeted sales increase for 20087 Warehouse X was expected to increase sales by $1.4M over 2007, What does it take to service an additional $1.4M in sales? Think through the possible impact on operations. Look at the change in "Total Salary Experise" from 2007 FY actual to 2008 FY budget. 9. Customers made a significant change in their buying behavior in 2008 versus 2007. What tells you this? (Hint: it has nothing to do with the net sales numbers) 10. Even though the Manager of Warehouse X failed to hit his/her budgeted sales number for 2008, what key ratio (a percentage of sales), had he or she hit the FY budgeted percentage, would have proven his/her excellence as a business manager? If that Manager had "nailed" that key ratio, what would the Operating Income have then become on $7,683,410 in sales? 11. How would you evaluate the performance of the Manager of Warehouse X? Be specific, Use the Income Statement to back up your evaluation. Does your evaluation change if the Manager of Warehouse X is long time veteran who has a history of al ways beating his her numbers and delivering great customer service? Does your evaluation change if the Manager of Warehouse X is in his/her first year of the position, Le. 2008 is his/her first full year as warehouse manager? 12. If you decide to terminate the Manager of Warehouse X for poor performance, how will you justify the termination? 13. You know how the budget process works. You know that your 2009 budget for Warehouse X will never be less than the 2008 budget that you falled to hit. In fact, you know that someone will "bump" those old 2008 numbers, so you are expecting the 2009 budget to come in around $8.7M in sales and $1,4M in operating income. Given that your 2008 actual numbers were $7.7M in sales and $875K in operating income, how will you "turn it around" for 20097 What is your game plan? What will you attack 1", 2". 1", etc