ACC501 Accounting for Decision Making

Trident University International

Arianna Mingo

Module 1

Case 1

Dr. Ronald Spicer

From: Arianna Mingo

To: The Serious Reader Company

Subject: Serious Reader Company's Planning for the Income Statement

Date: March 11, 2024

I'm pleased to join The Serious Reader Company as a financial analyst and learn

about their unique company approach. This little internet store in a garage apartment

carefully selects books from thrift stores, library sales, and garage sales. It offers a tempting

financial scrutiny potential. The business dynamics depend on categorizing books by

purchase cost and expected sales price. My main goal is to work with the company to create a

complete income statement that correctly reflects their financial situation and provides

strategic insights to boost profitability and sustainability. This collaboration will examine the

financial story and give vital data to support The Serious Reader Company's growth.

Previous Fiscal Year of Serious Reader Company

The Serious Reader Company's December income statement analyzes its financial

performance, focusing on organizing books into five categories (A, B, C, D, and E). Monthly

sales were $98,600, with each genre contributing differently. Genre A led with $20,000,

followed by C at $21,600, E at $7,500, B at $7,500, and D at $42,000. Book purchase prices

were $39,250, with Genre C spending the most ($9,000). Genre A has the highest shipping

costs ($7,000). A contribution margin of $47,012 was achieved, which means that there was

enough income to cover fixed expenses. Internet (18,00$), travel (5,800$), advertising

(17,800$), and miscellaneous overhead (9,400$) made up the fixed costs of $51,000. After

costs, December net operating income was -$3,988, a loss. This study explains genre sales,
variable costs, and fixed expenses' impact on The Serious Reader Company's financial

performance.

Boost Sales by 90%

Revenues rose 90% in the Serious Reader Company's December income statement,

indicating financial progress. Genre A led with $27,000, Genre B with $13,500, Genre C with

$64,800, and Genre D with $75,600 in monthly sales of $225,900. Variable operating

expenses rose proportionally: book acquisition cost $87,300 and transportation $23,940.

Genre C had the highest purchase cost of $27,000 and Genre A the highest delivery cost of

$9,450. Profitability climbed drastically as the contribution margin, which indicates how

much money is available to cover fixed expenses, rose to $114,660. Thus, The Serious

Reader Company's December net operating income was $63,660, a stunning reversal and

financial success. This research shows how the 90% sales increase has affected the company's

revenue, expenses, and net operating income.

50% Price Hike

The Serious Reader Company's December financial statement showed a 50% book

price rise, indicating business changes. Monthly sales were $147,900. A sold the most at

$30,000, followed by C ($32,400), E ($63,000), B ($11,250), and D. Shipping costs rose to

$12,337.5 and book procurement to $39,250 as sales rose. Genre C ($9,000) and A ($7,000)

had the highest delivery costs. Profit increased as the contribution margin—which covers

fixed expenses—rose to $96,312.5. Book prices rose 50% in December, boosting The Serious

Reader Company's net operating profits to $45,312.5. This study examines how pricing

affects sales, variable expenses, and net operating income.

Recommendation

Strategic thinking is needed for The Serious Reader Company to expand and improve

its market position. Focusing digital marketing and promotion, expanding Genre A items, and
optimizing variable expenditures are needed. Customer engagement initiatives like loyalty

and special discounts boost revenue. Market research helps set prices. Regularly analyzing

fixed expenses, notably internet, travel, advertising, and overhead, may reduce costs. User

experiences and e-commerce infrastructure should be improved to boost sales and customer

satisfaction. Effective relationships with like-minded firms may lead to collaborative

marketing and financial savings. Regular financial reviews are needed to monitor these

techniques' performance. Sustainability strategies like eco-friendly activities may boost

company reputation and meet client expectations. This long-term strategy will help the

Serious Reader Company navigate the competitive online retail book industry, grow on its

strengths, and fix its weaknesses.

Introduction

An income statement is a financial statement that presents the revenue and costs of a

firm, providing an indication of its profitability within a certain time period. The document,

often known as a profit and loss statement, statement of operation, or earnings statement,

assists in assessing a company's financial position alongside the balance sheet and cash flow

statement (Krishnan, 2019).

Importance of Income Statement

According to Krishnan (2019), an income statement is a crucial instrument used by

company proprietors to evaluate the profitability of their business by the means of increasing

sales, reducing costs, or implementing both strategies simultaneously. The data demonstrates

the effectiveness of the company's first strategies and assists in identifying the most effective

methods to increase revenues. Investors and company owners may closely monitor the firm's

performance and make informed decisions by reviewing the statement, which is generated on

a monthly or quarterly basis. It also illustrates prospective future costs that may increase as

the firm develops, such as rent, labor, and administrative expenses. In addition to providing
investors with a brief overview of the company they are considering investing in, the

statement also includes a comprehensive assessment of the business, which is used by banks

and other financial institutions to evaluate the company's creditworthiness. By analyzing the

income statement, businesses may identify any problems and address them promptly to

prevent them from becoming costly.

Variable Costing

A company's efficiency and profitability depend on variable cost in corporate

accounting. It includes steel, circuit boards, textiles, and packaging materials including boxes,

bags, and plastic wraps. Product profitability depends on these costs. When different skills

are required, piece-rate labor is best since it pays workers per completed or sold item and

fluctuates with production rates. Sales commissions are usually withheld if profit margins or

staff objectives are not met. Businesses must understand variable costs to evaluate expenses

and make smart decisions. This knowledge helps maintain operational profitability and

efficiency, improving decision-making (Indeed Editorial Team, 2023).

Conclusion

Income statements demonstrate a company's profitability, performance, and

creditworthiness. Labor and material variable costs influences productivity, profitability,

performance, and creditworthiness. Understanding variable costs helps evaluate spending and

make choices.
 References

Indeed Editorial Team. (2023). Variable Cost: Definition, Examples, Formulas and

Importance | Indeed.com. Retrieved from

https://www.indeed.com/career-advice/career-development/variable-cost-examples

Krishnan, V. (2019). Income statement - Definition, example & format of income statement -

Zoho Books. Retrieved from https://www.zoho.com/books/guides/what-is-an-income-

statement.html