Your sister operates Hercules Parts Company, a mail order boat parts distributorship that is in its third year of operations. The following is the single step income statement for the year ended December 31, 2016 Hercules Parts Company Income Statement Year Ended December 31, 2016 Revenues: Net sales revenue $ 600,000 Expenses: Cost of Goods Sold $ 420,000 Sales Salaries Expense $ 38,850 Freight Out Expense (shipping charges)$ 20,000.00 Advertising Expense $ 7,000.00 Office Salaries Expense 31,200 Office Supplies Expense $ 2,800.00 Interest Expense $ 10,000.00 Total Expenses $ 529,850 Net Income $ 70,150 $ Your sister had the following inventory balances: 1/01/16 38,000.00 12/31/16 $ 44,000.00 Projected inventory as of 12/31/17 $ 18,000.00 Your sister is considering a proposal to increase net income by offering their sales representatives a salary commission on every unit they sell. This should help increase sales. They also will be able to bargain for a better purchase price for their inventory, control their inventory more efficiently by adopting just-in-time inventory and by shipping all merchandise FOB Shipping Point Presently, all merchandise is shipped FOB Destination (Assume that the interest expense will remain the same in 2017). it is estimated that more creative marketing (in 2017) will enable Hercules to have a 20% increase in the Net Sales they had in 2016 by attracting new customers. Assume the new shipping terms (in 2017) will cause Hercules to have 15% decrease in the Net Sales they had in 2016. Due to intense negotiations, Hercules was able to reduce the cost of goods sold to 65% of Net Sales. Assume that Sales Salaries Expense, Advertising Expense, Office Salaries Expense and office Supplies Expense will all increase by 10%. Assume that all sales representatives will now receive a 5% commission on every sales dollar. This will create a new expense that we will call Sales Commission Expense Hercules Parts Company Proposed Multiple Step Income Statement Year Ended December 30, 2017 Revenues: Net Sales revenue Cost of goods sold Gross profit Operating expenses (list below) Net income Hercules Parts Company Vertical Analysis for the years ended December 31, 2017 and 2016 2017 Pecent 2016 Pecent 0 100% 0 100% 0 0 0 0 0 Net Sales Revenue Cost of Goods Sold Gross Profit Sales Salaries Expense Freight Out Expense Advertising Expense Sales Comm. Expense Office Salaries Expense Office Supplies Expense Interest Expense Net Income 0 0 0 0 0 0 0 0 0 0 Oo OO Inventory Turnover: 2017 2016 Cost of goods sold Average Inventory
