Accounting Case Import Distributor
Situation
Import Distributors ,Inc ( IDI ) imported and distributed appliances to retail stores in the Rocky Mountain states. IDI has three board lines of merchandise:
1. Television Equipment
2. Audio Equipment
3. Kitchen Appliances
Each line accounted for about one-third of total sales IDI sales revenue;
In late 1993 : Company started to set up departmental income statements in obtain to see if each department is carrying its fair share of the load.
In early April of 1994, the first departmental income statement were distributed to the management group.
In the first quarter of 1994 television department had shown a gross margin that was much too small to cover the department’s operating expenses. As shown in following income statement.
Television Department
Income Statement
For the first 3 Months of 1994 Description Amount
Net Sales Revenue $ 1,612,403.00
Cost of Sales $ 1,422,473.00
Gross Margin $ 189,930.00 Operating Expense
Personnel Expenses $ 10,140.00
Department manager's office $ 12,393.00
Rent $ 50,107.00
Inventory, Taxes and insurance $ 37,274.00
Utilities $ 3,006.00
Delivery Cost $ 32,248.00
Sales Commissions $ 80,621.00
Administrative cost $ 40,310.00
Inventory financing charge $ 23,708.00
Total Operating Expenses $ 289,807.00
Profit Before Tax $ (99,877.00)
Income Taxes (credit) $ (34,957.00)
Net Income (loss) $ (64,920.00)
Problem Identification
As mentioned before, the Television Department experienced a loss in first quarter of 1994. The accountant believes that discontinuing the product will be best alternatives for the company as a whole. But, before they make a decision, it better for them to identify theses key issues:
• How much money can be saved if the company
Import Distributors ,Inc ( IDI ) imported and distributed appliances to retail stores in the Rocky Mountain states. IDI has three board lines of merchandise:
1. Television Equipment
2. Audio Equipment
3. Kitchen Appliances
Each line accounted for about one-third of total sales IDI sales revenue;
In late 1993 : Company started to set up departmental income statements in obtain to see if each department is carrying its fair share of the load.
In early April of 1994, the first departmental income statement were distributed to the management group.
In the first quarter of 1994 television department had shown a gross margin that was much too small to cover the department’s operating expenses. As shown in following income statement.
Television Department
Income Statement
For the first 3 Months of 1994 Description Amount
Net Sales Revenue $ 1,612,403.00
Cost of Sales $ 1,422,473.00
Gross Margin $ 189,930.00 Operating Expense
Personnel Expenses $ 10,140.00
Department manager's office $ 12,393.00
Rent $ 50,107.00
Inventory, Taxes and insurance $ 37,274.00
Utilities $ 3,006.00
Delivery Cost $ 32,248.00
Sales Commissions $ 80,621.00
Administrative cost $ 40,310.00
Inventory financing charge $ 23,708.00
Total Operating Expenses $ 289,807.00
Profit Before Tax $ (99,877.00)
Income Taxes (credit) $ (34,957.00)
Net Income (loss) $ (64,920.00)
Problem Identification
As mentioned before, the Television Department experienced a loss in first quarter of 1994. The accountant believes that discontinuing the product will be best alternatives for the company as a whole. But, before they make a decision, it better for them to identify theses key issues:
• How much money can be saved if the company