Problem Two Frames R Us sells two types of frames Frames R Us sells two types of

Question

Problem Two  

Frames R Us sells two types of frames

Frames R Us sells two types of frames - large and small to two types of customers - gift shops and discount stores: Required: Using the information above, determine the operating income and return on sales for both the Gift Shops division and the Discount Stores division, and place your answers in the provided areas below. Gift Shops operating income Discount Stores operating income __ Gift Shops ROS (%) _Discount Stores ROS (%) _ Required: Assume Frames R Us desires a 25% return on sales. What level of profit enhancement (cost reduction) is required to meet the profitability target at the same level of sales? By what percentage must current costs be reduced to reach this goal? Dollar amount of reduction in costs _ Percentage that current costs must be lowered to reach 25% ROS __ Problem Three Great Chocolate sells two types of candy - bars and gift boxes to two types of customers - specialty shops and drug stores: Required: Using the information above, determine the operating income and return on sales (ROS) for both the Specialty Shops division and the Drug Stores division, and place your answers in the provided areas below. Specialty Shops operating income Drug Stores operating income _ Specialty Shops ROS (%) _ Drug Stores ROS (%) Required: Assume Great Chocolate desires a 40% return on sales. What level of profit enhancement (cost reduction) is required to meet the profitability target at the same level of sales? By what percentage must current costs be reduced to reach this goal? Dollar amount of reduction in costs Percentage that current costs must be lowered to reach 40% ROS _

Explanation / Answer

GIFT SHOP OPERATING INCOME

PART.LARGEFRAME SMALLFRAME

CONT. 3900000 2800000

-OP.EXP5000000

OPINC. 1700000

ROS%=1700000/13000000*100=13.08%

OP INC. DIC STORE

PART. LARGEFRAME SMALL FRAME

CONT 5850000 1200000

-OPEXP3000000

OP INC =4050000

ROS%=4050000/12000000=33.75%

NEXT REQUIREMENT:

TARGET PROFIT 25%OF SALES=6250000

PRESENT COST=VC=5250000+6000000

+OC=8000000

TOTAL=19250000

-DESIRED COST=18750000

=500000

% OF COST=500000/19250000*100=2.6%

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