Accounting Problem- Charlie's Furniture Store
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(See attached file for full problem description)
Charlie's Furniture Store has been in business for several years. The firm's owners have described the store as a
"high-price, high-service" operation that provides lots of assistance to its customers. Margin has averaged a relatively
high 32% per year for several years, but turnover has been a relatively low 0.4 based on average total assets of
$800,000. A discount furniture store is about to open in the area served by Charlie's, and management is considering
lowering prices in order to compete effectively.
Please proceed to the "Analysis" worksheet and complete the basic problem requirements. Complete the problem
requirements by entering appropriate amounts or formulas in shaded worksheet cells:
a. Calculate current sales and ROI for Charlie's Furniture Store.
b. Assuming that the new strategy would reduce margin to 20%, and assuming that average total assets would stay
the same, calculate the sales that would be required to have the same ROI as that currently earned.
Suppose that you presented the results of your analysis in parts (a) and (b) of this problem to Charlie, and he replied,
"What are you telling me?!? If I reduce my prices as planned, then I have to practically double my sales volume in order to
earn the same return? Given the results of your analysis, how would you react to Charlie?
Suppose now that Charlie's says, "You know, I'm not convinced that lowering prices is my only option in terms of staying
competitive. What if I were to increase my marketing efforts? I'm thinking about kicking off a new advertising campaign
after conducting more extensive market research to better identify who my target customer groups are." In general, explain
to Charlie what the likely impact of a successful strategy of this nature would be on margin, turnover, and ROI.
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Solution Summary
The solution has the Charlie's Furniture Store problem relating to calculation of margin, turnover and ROI
Solution Preview
Please see the attached file.
In doing such kind of problem, the data to be entered in the yello cells is already provided. The formula to be entered in te gray cells is also given below. You need to look at the formula given and put it in the gray cells. It shows that ROI ...
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