Ms. Kane, the china and glass buyer of Crystal Clear, Inc., was asked to present

Question

Ms. Kane, the china and glass buyer of Crystal Clear, Inc., was asked to present a yearly profit and loss statement in skeletal form to the divisional merchandise man ager. In addition, she wanted to prepare a summary of comments that included a comparison of her performance this year with that of her major competitor, China Seas, Ltd. Ms. Kane obtained the following information from Crystal Clear's statisti- cal department Gross sales Alteration and workroom costs Opening inventory at cost Closing inventory at cost New purchases at cost Inward freight Cash discounts General overhead Advertising Salaries Rent Customer returns and allowances $135,000 $1,000 $49,500 $61,000 $77,500 $1,500 4% $11,000 $9,000 $20,000 $8,600 $15,000 Ms. Kane obtained, from outside research, profit and loss data on her competitor, China Seas, which had the following results for the same year: Profit 6% or $7,350 Operating expenses 40% Ms. Kane then prepared a skeletal profit and loss statement for her department and for that of her competitor, China Seas. On completion of this task, she compared the two statements. Based on this study, where and how did Ms. Kane determine that she could take action that would give immediate results and have an impact on the department's profitability? Support the suggested action mathematically.

Explanation / Answer

Analysis: The income statemnt of Ms Kane shows a negative net profit percentage in compare with the industry average. The company has net loss of 2% but in the industry the there are net profit of 6%. So the company should think about it and try to imporve the same.

In other hand the total operating expenses precentage is also high in case of Ms. kane. The industry average is 40% but the Ms. Kone has 42%. So the increase opertaing percentage indicates that the total operating expenses in more and it should be reduced.

So the company should be focused on the cost management. The proper cost management will help to reduce the total cost and increase the total net profit as well as the total percnetage of the net profit. The management should takes various strategic decisions and implement the same accordance with that to get the positive outcome from the business.

Solution: Statement of Income of Ms. Kane Particulars Amount($) Amount($) Gross Sales 1,35,000.00 Less: Cash Dicsount (4%)        5,400.00 Less: Customer Return & Allowance      15,000.00 Net Sales 1,14,600.00 Purchase of Inventory      77,500.00 Add: Opening Inventory      49,500.00 Less: Closing Inventory      61,000.00 Cost of Goods Sold      66,000.00 Less: Freight Inward        1,500.00 Less: Alteration and workroom costs        1,000.00 Gross Profit      46,100.00 Less: General Overhead      11,000.00 Less: Advertising        9,000.00 Less: Salaries      20,000.00 Less: Rent        8,600.00 Total Cost      48,600.00 Net Profit       -2,500.00 Net Profit Percentage -2% Operating Expenses Percentage 42%

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