Explanation The income statement: This is a financial statement that shows the net income earned or net loss suffered by a company through reporting all the revenues earned and expenses incurred by the company over a specific period of time. An income statement is also known as an operations statement, an earnings statement, a revenue statement, or a profit and loss statement. The net income is the excess of revenue over expenses. MEMO Dated: 30/11/2020 From: ABC To: Mr. S Company W Subject: Potential benefits and limitations of the proposal. Mr. S Company W Company W can easily increase the net income by $64,200, from $321,000 to $385,200 if the projected changes in credit terms increase the sales by 10% as predicted. This proposal will increase the sales by $135,000 and cost of goods sold is also increased by 60% of the sales increased ($135,000) or $81,000 whereas, the other selling expenses will increase proportionately to sales. The selling expense will decrease by $10,200 as there is a change in freight terms (from FOB destination to FOB shipping point). Company W will save $12,000 in freight costs. The entire changes will result in an increase of $64,200 However, the company will face certain potential risks associated with the proposal. The following are some risks associated with the proposal: The accuracy of projected figure and actual changes are not certain. Company W will incur a major cost of carrying excess inventory if the increase in sales does not appear. The changes in discount terms will reduce the cash collections from customers and it may generate a liquidity problem for Company W. Many customers may seek other vendors due to the changes in freight terms...

15th Edition

ISBN: 9781337272124

Author: Carl Warren, James M. Reeve, Jonathan Duchac

Publisher: Cengage Learning

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Chapter 6, Problem 4CP

To determine

Prepare a MEMO to Mr. S of Company W.

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Chapter 6 Solutions

Financial Accounting

Ch. 6 - Prob. 1DQ Ch. 6 - Can a business earn a gross profit but incur a net...Ch. 6 - The credit period during which the buyer of...Ch. 6 - What is the meaning of (a) 1/15, n/60; (b) n/30;...Ch. 6 - Prob. 5DQ Ch. 6 - Prob. 6DQ Ch. 6 - Prob. 7DQ Ch. 6 - Name four accounts that would normally appear in...Ch. 6 - Prob. 9DQ Ch. 6 - Assume that Audio Outfitter Inc. in Discussion...

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