Winfield Company operates a retail store a) Below is a table containing monthly

Question

Winfield Company operates a retail store a) Below is a table containing monthly sales and sales staff compensation, in dollars for the previous year. Use the high-low method to create an equation in the form Y = a+ bX to describe the behavior of sales staff compensation. Month Comp Sales 1 412,700 1,808,000 2 386,000 1,659,000 3 359,700 1,512,000 4 346,500 1,138,000 5 359,400 1,218,900 6 341,000 1,233,000 7 366,500 1,409,300 8 364,200 1,437,000 9 400,100 1,616,600 10 443,000 1,833,000 11 432,900 1,858,000 12 409,600 1,735,000 b) Other information: Store rent expense is $70,000 / month Utilites on average amount to 5% of sales staff compensation Management staff, in aggregate, are paid $10,000 / month plus 2% of sales Cost of goods sold is typically 58% of sales Miscellaneous expenses are $1,000 / month Given these data, determine the forecast net profit of the store at sales of $2,000,000 for the month c) Identify at least two potential weaknesses in your profit forecast. (Limit 100 words) Winfield Company operates a retail store a) Below is a table containing monthly sales and sales staff compensation, in dollars for the previous year. Use the high-low method to create an equation in the form Y = a+ bX to describe the behavior of sales staff compensation. Month Comp Sales 1 412,700 1,808,000 2 386,000 1,659,000 3 359,700 1,512,000 4 346,500 1,138,000 5 359,400 1,218,900 6 341,000 1,233,000 7 366,500 1,409,300 8 364,200 1,437,000 9 400,100 1,616,600 10 443,000 1,833,000 11 432,900 1,858,000 12 409,600 1,735,000 b) Other information: Store rent expense is $70,000 / month Utilites on average amount to 5% of sales staff compensation Management staff, in aggregate, are paid $10,000 / month plus 2% of sales Cost of goods sold is typically 58% of sales Miscellaneous expenses are $1,000 / month Given these data, determine the forecast net profit of the store at sales of $2,000,000 for the month c) Identify at least two potential weaknesses in your profit forecast. (Limit 100 words)

Explanation / Answer

a)

b)

c) Two potential weaknesses

1.Utilities which is calculated on average amount to 5% of sales staff compensation might be inaccurate as it is kind of fixed expenses.

2.Management staff expenses should not be based on % of sales.

Sales Comp High level of Activity 1858000 432900 Low level of Activity 1138000 346500 Change 720000 86400 Variable cost per dollar 0.12 (86400/720000) Fixed cost per year 209940 = 432900-(0.12*1858000) Equation = Y =$209,940+$0.12X

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