Case 1: Donna Tse has recently accepted the position of assistant manager at Cycle World, a bicycle store in St. Louis. She has just finished her accounting courses. Cycle World's manager and owner, Jeff Towry, ask Tse to prepare a budgeted income statement for 2011 based on the information he has collected. Tse's budget follows:
Cycle World
Budgeted Income Statement
For the year ending July 31, 2011
|
Sales revenue
|
|
$244,000
|
|
Cost of goods sold
|
|
177,000
|
|
Gross profit
|
|
67,000
|
|
Operating expenses:
|
|
|
|
Salary and commission expense
|
$46,000
|
|
|
Rent expenses
|
8,000
|
|
|
Depreciation expense
|
2,000
|
|
|
Insurance expense
|
800
|
|
|
Miscellaneous expenses
|
12,000
|
68,800
|
|
Operating loss
|
|
(1,800)
|
|
Interest expense
|
|
(22.5)
|
|
Net loss
|
|
(2,025)
|
Requirement:
Tse does not want to give Towry this budget without making constructive suggestions for steps Towry Ccould take to improve expected performance. Write a memo to Towry outlining your suggestions.