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Sandhill Department Store is located in midtown Metropolis. During the past several years, net income has been declining because suburban shopping centers have been
Sandhill Department Store is located in midtown Metropolis. During the past several years, net income has been declining because suburban shopping centers have been attracting business away from city areas. At the end of the company's fiscal year on November 30, 2022, these accounts appeared in its adjusted trial balance. Accounts Payable $65,400 Accounts Receivable 42,600 Accumulated Depreciation-Equipment 170,000 Cash 20,000 Common Stock 87,500 Cost of Goods Sold 1,524,900 Freight-Out 16,310 Equipment 397,450 Depreciation Expense 34,700 Dividends 30,000 Gain on Disposal of Plant Assets 5,000 Income Tax Expense 25,000 Insurance Expense 22,500 Interest Expense 12,500 Inventory 65,100 Notes Payable 108,750 Prepaid Insurance 15,000 Advertising Expense 83,750 Rent Expense 85,000 Retained Earnings 35,100 Salaries and Wages Expense 296,640 Sales Revenue 2,260,000 Salaries and Wages Payable 15,000 Sales Returns and Allowances 50,000 Utilities Expense 25,300 Additional data: Notes payable are due in 2026. The vice president of marketing and the director of human resources have developed a proposal whereby the company would compensate the sales force on a strictly commission basis. Given the increased incentive, they expect net sales to increase by 15%. As a result, they estimate that gross profit will increase by $102,765 and expenses by $140,335. Compute the expected new net income. (Hint: You do not need to prepare an income statement.) Then, compute the revised profit margin and gross profit rate. Comment on the effect that this plan would have on net income and on the ratios, and evaluate the merit of this proposal. (Ignore income tax effects.) Revised net income Revised profit margin (Round to 1 decimal place, e.g. 15.2%) % Revised gross profit rate (Round to 1 decimal place, e.g. 15.2%) % eTextbook and Media
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