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Challenging Problems

Cely Toledo, manager of a clothing store, provided sales, cost, and profit figures for each of the store's three branches. She asked for a report calculating the profit percentage of each branch. The document then presents two alternative expansion plans and asks whether they would improve total profit and the performance of particular branches. The first plan expands the Davao branch with a grocery addition, projecting a sales increase. This is calculated to raise total profit from $245,000 to $345,000 and improve Davao's profit percentage. The second plan expands the Cebu branch, projecting a sales increase but also higher costs. This is calculated to raise total profit to $300,000 but lower Cebu's profit percentage.

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Rosiel S. Solis
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218 views3 pages

Challenging Problems

Cely Toledo, manager of a clothing store, provided sales, cost, and profit figures for each of the store's three branches. She asked for a report calculating the profit percentage of each branch. The document then presents two alternative expansion plans and asks whether they would improve total profit and the performance of particular branches. The first plan expands the Davao branch with a grocery addition, projecting a sales increase. This is calculated to raise total profit from $245,000 to $345,000 and improve Davao's profit percentage. The second plan expands the Cebu branch, projecting a sales increase but also higher costs. This is calculated to raise total profit to $300,000 but lower Cebu's profit percentage.

Uploaded by

Rosiel S. Solis
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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CHALLENGING PROBLEMS (Group Work)

Problem #19

Cely Toledo is the manager of Shangrila Daily Wear, a store is selling clothes and footwear with branches
in Manila, Cebu, and Davao. She gave you the following information.

Figure 1.1

Manila Branch Cebu Branch Davao Branch TOTAL

Sales P300,000 P400,000 P105,000 P805,000

Cost & Expenses 200,000 270,000 90,000 560,000

Net Income (Loss) P100,000 P130,000 P 15,000 P245,000

She wants you to prepare a management report stating the profit performance of each branch by using
a profit percentage (profit/revenues x 100)

 Manila Branch (Therefore the percentage of profit performance of the


100,000/300,000 x 100 = 33.33 % Manila Branch is 33.33%)

 Cebu Branch (Therefore the percentage of profit performance of the Cebu


Branch is 32.5%
130,000/400,000 x 100 = 32.5%

 Davao Branch Therefore the percentage of profit performance of the Davao


Branch is 14.29%
15,000/105,000 x 100 = 14.29%

1. (Refer to Toledo problem). After a careful study. You recommend to expand Davao by putting up
a grocery. Projected sales will be P500,000 with the cost and expenses amounting to 80% of
sales.
(500,000 x 0.8=400,000). Therefore 80% of sales is P400,000.
A.) Revised the profit of Davao by adding the incremental sales and deducting the incremental
cost and expenses.

figure 1.2

Davao Branch

Sales 105,000 + 500,000 =P605,000

Cost & Expense 90,000 + 400,000 = 490,000

Net income(loss) P 115,000


b.) To arrive to a total profit,

> Add the Davao revised profit in to a reported profit of Manila and Cebu.

Manila Branch Cebu Branch Davao Branch TOTAL

Sales P300,000 P400,000 P605,000 P1,305,000

Cost & Expenses 200,000 270,000 490,000 960,000

Net Income (Loss) P100,000 P130,000 P 115,000 P345,000

figure 1.3

>Compare the total profit against the actual profit of P245,000

After we recommend to expand the Davao Branch by putting up a grocery and revising the profit. The
result is that the total profit became P345,000 which is higher than the actual profit P245,000

Will the total profit Improve? Yes, the total profit did improve.

c.) Will the Davao’s profit performance efficiency improve?

Yes, the Davao’s profit performance efficiency did improve from 14.29% increases to 19.01 %.

115,000/605,000 x 100 = 19.01%


%

2. Use the Toledo data in no. 19. Assume that an alternative course of action will be to expand
Cebu Branch and drop Davao Branch Cebu sales will increase by P400,000 but cost and expenses
will increase by 70% of incremental sales. Davao manager will be transferred to Cebu and be
paid a salary of P50.000.

The 70% of P400,000 is P280,000 (400,000 x 0.7 = 280,000)

Therefore, the cost and expenses will increase by P280,000

We will add P50,000 to cost and expenses because Davao manager will have his/her a salary and we all
know salary is an expenses. So, the total amount of cost and expenses is P330,000

Cebu Branch
Figure 1.4
Sales P400,000 + 400,000 = P 800,000

Cost & expenses 270,000 + 330,000= 600,000

Net income (loss) P200,000


Manila Branch Cebu Branch TOTAL

Sales P300,000 P800,000 P 1,100,000

Cost & Expenses 200,000 600,000 800,000

Net Income (Loss) P100,000 P200,000 P 300,000

Questions:
a) Will total profit improve? Yes, the total profit become P300,000, compare to the actual profit
which is P245,000 there is an increase of P55,000.

b) Will Cebu's performance efficiency improve? 200,000/800,000 x 100 = 25%


No, Cebu’s performance efficiency didn’t improve.
From 32.5% decreases to 25%

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