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Ways to double income: Campbell Appliance

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Suppose you own Campbell Appliance. The store's summarized financial statements for 2008, the most recent year, follow:

Campbell Appliance
Income Statement
Year Ended Dec 31, 2008

Sales $800 (thousands)
COGS 660
Gross Profit 140
Operating expenses 100
Net Income $40

Campbell Appliance
Balance Sheet
Dec 31, 2008

Assets:
Cash $30
Inventories 75
Land and Building, net

Total assets $465

Liabilities and Capital:
Accounts Payable $35
Note payable 280
Total liabilities 315
Owner, capital 150
Total liabilities and capital $465

Directions:
Assume that you need to double net income. To accomplish your goal, it will be very difficult to raise the prices you charge because there is a Best Buy nearby. Also, you have little control over your cost of goods sold because the appliance manufacturers set the price you must pay.

Identify several strategies for doubling net income.

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The most obvious suggestion is to increase sales volume. Since you cannot control prices or your costs, increasing sales volume is the main strategy. Other less ...

Solution provided by:
Carol Sargent, PhD
Education
  • BSc, University of Virginia
  • MSc, University of Virginia
  • PhD, Georgia State University
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