Three years ago, Michelle Walker and her brother$-$in$-$law Anthony Hall opened Teal Mountain Department Store. For the first $2$ years,

business was good, but the following condensed income statement results for $2027$ were disappointing.

TEAL MOUNTAIN DEPARTMENT STORE

Income Statement

For the Year Ended December $31,2027$

Operating expenses

Michelle believes the problem lies in the relatively low gross profit rate of $20\%.$ Anthony believes the problem is that operating

expenses are too high. Michelle 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 $25\%.$ Michelle does not anticipate that these changes will have any effect on operating

expenses.

Anthony thinks expenses can be cut by making these two changes. $(1)$ Cut $2028$ sales salaries of $$75,750$ 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 $2028$ delivery expenses of $$50,500$ by $40\%.$ Anthony feels that these changes will not have any effect on net sales.

Michelle and Anthony come to you for help in deciding the best way to improve net income.

With the class divided into groups, answer the following.

$($a$1)$

Your answer is partially correct.

Prepare a condensed income statement for $2028$ assuming Michelle's changes are implemented.

TEAL MOUNTAIN DEPARTMENT STORE

Projected Income Statement

For the Year Ended December $31,2028$