Case 1

Donna Tse has recently accepted the position of assistant manager at cycle world, a bicycle store in St. Louis. She has just finished her accounting courses. Cycle worlds manager and owner Jeff Towry ask Tse to prepare a budgeted income statement for 2011 based on the information he has collected. Tse's budget follows:

Sales revenue.....$244.000

Costs of goods sold...$177,000

Gross profit....$67,000

Operating expenses:

Salary and commission expense......$46,000

Rent expense......$8,000

Depreciation expense.....$2,000

Insurance expense.....$800

Miscellaneous expenses......$12,000 $68,000

Operating loss 1800

interest expense 225

Net loss $2,025

Requirement 1

Tse does not want to give Towry this budget without making constructive suggestions for steps Towry could take to improve expected performance. Write a memo (1-2 paragraphs) to Towry outlining your suggestions.