1.McCarty Pointers Corporation expects to begin operations on January 1, 2012; it will operate as a specialty sales company that sells laser pointers over the Internet. McCarty expects sales in January 2012 to total $200,000 and to increase 10 percent per month in February and March. All sales are on account. McCarty expects to collect 70 percent of accounts receivable in the month of sale, 20 percent in the month following the sale, and 10 percent in the second month following the sale.
a. Prepare a sales budget for the first quarter of 2012.
b. Determine the amount of sales revenue McCarty will report on the first 2012 quarterly pro forma income statement.
c. Prepare a cash receipts schedule for the first quarter of 2012.
d. Determine the amount of accounts receivable as of March 31, 2012.
Eliminating a Segment
Eliminating a segment
Levene Boot Co. sells men’s, women’s, and children’s boots. For each type of boots sold, it operates a separate department that has its own manager. The manager of the men’s department has a sales staff of nine employees, the manager of the women’s department has six employees, and the manager of the children’s department has three employees. All departments are housed in a single store. In recent years, the children’s department has operated a net loss and is expected to continue doing so. Last year’s income statement follow.
Men’s Dept Women’s Dept Children’s Dept
Sales $600,000 $420,000 $160,000
Cost of Goods Sold (265,500) (176,400) (96,875)
Gross Margin 334,500 243,600 63,125
Dept. manager’s salary (52,000) (41,000) (21,000)
Sales commission (106,200) (75,600) (27,900)
Rent on store lease (21,000) (21,000) (21,000)
Store utilities (4,000) (4,000) (4,000)
Net Income (loss) $151,300 $102,000 $(10,775)
a. Determine whether to eliminate the children’s department.
b. Confirm the conclusion you reached in Requirement a by preparing income statements for the company as a whole with and without the children’s department.
c. Eliminating the children’s department would increase space available to display men’s and women’s boots. Suppose management estimates that a wider selection of adult boots would increase the store’s net earnings by $32,000. Would this information affect the decision that you made in Requirement a? Explain your answer.