Three years ago, Adele and Taylor, opened Hollywood Music Store, which sells musical instruments. For the first 2 years, business was good, but the following summarised financial performance for 2021 was disappointing: Hollywood Music Store Income statement for the year ended 30 June 2021 Net sales $ 700 000 Cost of sales (546 000) Gross profit 154 000 Less: Operating expenses Selling expenses $ 100 000 Administrative expenses 20 000 Financial expenses 5 000 Total expenses 125 000 Profit $ 29 000Adele believes the problem lies in the relatively low gross prot ratio (gross prot divided by net sales] of 22%. Taylor believes the problem is that operating expenses are too high. Adele thinks the gross prot ratio can be improved in 2022 by making two changes: - Increase average selling prices this increase is expected to lower sales volume so that the total sales will increase only by 6%. - Buy inventory in larger quantities to take advantage of all trade discounts given by the suppliers These changes are expected to increase the gross prot ratio by 3%. Taylor thinks that, by making the following two changes in 222. expenses can be out without adverser affecting net sales: - Cut employee salaries by 25% - Reduce store deliveries to one day per week rather than twice per week Adele and Taylor come to you for help in deciding the best way to improve prot. Requirements: 1. What are the ratios you would like to compute in order to assess the protability of Hollywood Music Store in 2021? Dene each ratio in your answer {no calculation needed} 2. What is your recommendation to Adele and Taylor? Give reasons for your recommend ation. 3. Discuss the impact that those changes suggested by Adele and Taylor might have. For example. what are the costs associated with increasing the quantity of inventory? Would a salary cut affect employee morale. which in turn, affects sales? Would decreased store deliveries decrease customer satisfaction