Three years ago, Amy Hessler and her brother-in-law Jacob Seelig opened Family Department Store. For the first two years, business was good, but the following condensed income results for 2019 were disappointing.

FAMILY DEPARTMENT STORE

Income Statement

For the Year Ended December 31, 2019

Net sales

$630,000

Cost of goods sold

504,000

Gross profit

126,000

Operating expenses

Selling expenses

$100,000

Administrative expenses

20,000

120,000

Net income

$ 6,000

Amy believes the problem lies in the relatively low gross profit rate (gross profit divided by net sales) of 20%. Jacob believes the problem is that operating expenses are too high.

Amy thinks the gross profit rate can be improved by making both of the following changes. She does not anticipate that these changes will have any effect on operating expenses.

1.

Increase average selling prices by 17%. This increase is expected to lower sales volume so that total sales will increase only 6%.

2.

Buy merchandise in larger quantities and take all purchase discounts. These changes are expected to increase the gross profit rate by 3 percentage points.

Jacob thinks expenses can be cut by making both of the following changes. He feels that these changes will not have any effect on net sales.

1.

Cut sales salaries of $60,000 in half and give sales personnel a commission of 2% of net sales.

2.

Reduce store deliveries to one day per week rather than twice a week. This change will reduce delivery expenses of $30,000 by 40%.

Amy and Jacob come to you for help in deciding the best way to improve net income.

Answer the following.

Prepare a condensed income statement for 2020, assuming Amys changes are implemented.

Prepare a condensed income statement for 2020, assuming Amy's changes are implemen FAMILY DEPARTMENT STORE Income Statement $ A Prepare a condensed income statement for 2020, assuming Jacob's ideas are adopted. Prepare a condensed income statement for 2020, assuming Jacob's ideas are adopted. FAMILY DEPARTMENT STORE Income Statement $ $ ement for 2020, assuming both sets of proposed changes are made Prepare a condensed income statement for 2020, assuming both sets of proposed changes are made FAMILY DEPARTMENT STORE Income Statement