Three years ago, Margaret Moore and her brother-in-law Joseph Taylor opened Tamarisk Department Store. For the first 2 years, business was good, but the following condensed income statement results for 2022 were disappointing.

TAMARISK DEPARTMENT STORE Income Statement For the Year Ended December 31, 2022
Net sales				$790,000
Cost of goods sold				632,000
Gross profit				158,000
Operating expenses
Selling expenses		$111,250
Administrative expenses		22,250
				133,500
Net income				$24,500

Margaret believes the problem lies in the relatively low gross profit rate of 20%. Joseph believes the problem is that operating expenses are too high. Margaret thinks the gross profit rate can be improved by making two changes. (1) Increase average selling prices by 15%; this increase is expected to lower sales volume so that total sales dollars will increase only 4%. (2) Buy merchandise in larger quantities and take all purchase discounts. These changes to purchasing practices are expected to increase the gross profit rate from its current rate of 20% to a new rate of 25%. Margaret does not anticipate that these changes will have any effect on operating expenses. Joseph thinks expenses can be cut by making these two changes. (1) Cut 2023 sales salaries of $66,750 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 2023 delivery expenses of $44,500 by 40%. Joseph feels that these changes will not have any effect on net sales.

Discuss below: 1) Margaret and Joseph come to you for help in deciding the best way to improve net income.

2) Prepare a condensed income statement for 2023 assuming both sets of proposed changes are made. (Round answers to 0 decimal places, e.g. 5,275.)