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Your sister operates Harbor Ready Parts Company, an online boat parts distributorship that is in its third year of operation. The following income statement was
Your sister operates Harbor Ready Parts Company, an online boat parts distributorship that is in its third year of operation. The following income statement was recently prepared for the year ended October 31, 20Y6: YYour sister is considering a proposal to increase net income by offering sales promotions, including coupons and rebates and by shipping all merchandise FOB shipping point. It is estimated that the sales promotion will increase sales by 15%, but will also increase the ratio of cost of goods sold to sales to 68%. The cost of the sales promotions will increase selling expenses from $135,000 to $150,000. All merchandise is currently shipped FOB destination. All other expenses are expected to remain unchanged, except for store supplies, miscellaneous selling, office supplies, and miscellaneous administrative expenses, which are expected to increase proportionately with increased sales. The amounts of these preceding items for the year ended October 31, 20Y6, were as follows: The other revenue and other expense items will remain unchanged. The shipment of all merchandise FOB shipping point will eliminate all delivery expenses, which for the year ended October 31,20Y6, were $28,000. 1. Prepare a projected single-step income statement for the year ending October 31,20Y7, based on the proposal. Assume all sales are collected within the credit period. 2. Based on the projected income statement in part (1), would you recommend implementation of the proposed changes? 3. Describe any possible concerns you may have related to the proposed changes described in part (1)
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