I need help with this problem.
Using the information on sales and expenses for a typical store, provide an analysis of the
additional store profit contributed by the plan.
Assume that it costs 12% a year to carry the added inventory
I need to instead work with these numbers:
- Sales increase by 12%
- Wage expense increased from an average of about 8% to about 11% of sales.
- Inventory fixed charge 15%
- Everything else is the same.
Please include a spreadsheet and full explanation. Thank you.
are reported in Figure 1 page 17-36. Month 25 is denoted as the rollout month, the month the incen- tive plan began. Expense Analysis: You then plotted wage expense/sales, cost of goods sold/sales, and inventory turnover for the twenty stores for the 24 months preceding the plan and the first 24 months after plan implementation. After pulling out seasonal effects these monthly series are presented in Figures 2, 3 and 4. If the plan has no impact on these expenses then you would expect no dramatic change in the series around month 25. Figure 2 plots (wage expense in month t/sales in month t) Figure 3 plots (cost of goods sold in month t/sales in month t) Figure 4 plots "annual" turnover computed as (12 x cost of goods sold in month t/inventory at beginning of month t) For example, if monthly cost of sales is $100 and the annual inventory turnover ratio is 4. it suggests a monthly turnover of 0.333 with the firm holding an average inventory of $300 throughout the year. (Note that a monthly inventory turnover of .333 implies an annual turnover of 4 (from 12 x 0.333). Financial Report for Store: A typical annual income statement for a pre-plan Ladbreck store before fixed charges, taxes and incidentals looks as follows. Total Percent Sales. ............ .. . 10,000,000 100 Cost of goods sold . . 6,300,000 63 Gross profit. . . .. . . . .. . . . ...... 3,700,000 37 Employee salaries. ...... 800,000 8 Profit before fixed charges. . ..... ... ... ... .... .. 2,900,000 29 A store also has substantial charges for rent, management salaries, insurance, etc. but they are fixed with respect to the incentive plan.MA17-35. continued h. Before Plan After Plan Change Sales $10,000,000 $10,800,000 $800,000 Cost of sales 6,300,000 6,804,000 504,000 Gross profit 3,700,000 3,996,000 296,000 Employee salaries 800,000 1,080,000 280,000 Profit before fixed charges 2,900,000 2,916,000 16,000 Less implicit inventory costs* 189,000 204, 120 15,120 Profit after fixed charges $2,711,000 $ 2,711,880 $ 880 Inventory costs calculation: Sales $10,000,000 $10,800,000 $800,000 Cost of sales % 63% 63% 63% Cost of sales $ $ 6,300,000 $ 6,804,000 $504,000 Inventory turnover + 4 + 4 + 4 Total inventory $ 1,575,000 $ 1,701,000 $126,000 Inventory fixed charge % 12% 12% 12% Inventory fixed charge $ $ 189,000 $ 204,120 $ 15,120
