Income Statement Discussion:

Referencing this week’s readings and lecture, address the following:

• What are the two causes of an increasing or decreasing sales number?
• Discuss all the reasons that might explain an increase or decrease in gross profit.

Epstein, L. (2014). Financial decision making: An introduction to financial reports [Electronic version]. Retrieved from https://content.ashford.edu/

• Chapter 3: The Income Statement

Article

Ford Motor Company. (2014). Ford Motor Company 2012 annual report (Links to an external site.)Links to an external site..  Retrieved from  http://corporate.ford.com/content/dam/corporate/en/investors/reports-and-filings/Annual%20Reports/2012-annual-report.pdf

Recommended Resources

Articles

Harper, D. (n.d.). Financial statements: Cash flow (Links to an external site.)Links to an external site.. Investopedia. Retrieved from http://www.investopedia.com/university/financialstatements/financialstatements3.asp

Harper, D. (n.d). Financial statements: Earnings (Links to an external site.)Links to an external site.. Investopedia. Retrieved from http://www.investopedia.com/university/financialstatements/financialstatements4.asp

Loth, R. (2011, October). Understanding the income statement (Links to an external site.)Links to an external site.. Investopedia. Retrieved from http://www.investopedia.com/articles/04/022504.asp

Respond to at least two of your classmates’ posts.

Edwards:

Sales numbers may decrease for a company if their supplier gives them  volume discounts. Organizations present big merchants a reduced rate if  they purchase a large quantity of their products. An establishment can  “offer its widgets at $50 each if fewer than 1,000 units are ordered.  However, it may cut the price to $45 when 1,001 to 5,000 units are  ordered and further reduce the price to $40 for orders over 5,000 units”  (Epstein, 2014, p. 3.2). This can allow a company to sell a new product  for a lesser price that what their competitors are selling it for,  allowing them to increase their sales.

One factor that makes sales number decrease is when a customer  returns a product after they have purchased. A lot of stores will give  you 30 days to return clothing for a full refund if it does not look  worn and if the customer has a receipt. Walmart has a customer service  line that is mainly used for returns where customers are allowed to  return products from the electronics, furniture, accessories and the  bedding department. Operating cost and employee salaries can cause a  company to spend more money and they compensate that lost money by  increasing their prices which could lead to decreased sales.

Gross profit is how much a company has left over after spending funds  that were used to manufacture, purchase and sell goods. When a supplier  stops giving volume discounts, companies have to purchase them at  regular price which can decrease gross profit. It can also be decreased  when product prices are too low. Gross profit can be increased when  companies do more with less, which means they reduce the number of  employees and still get the same amount of work done. Gross profits also  increase when products or services are in demand like seasonal items  are during Christmas, Easter, or valentine’s day.

References

Epstein, L. (2014). Financial decision making: An introduction to financial reports. Retrieved from https://content.ashford.edu/books/AUOMM622.14.1/sections/sec1.3?search=equity#w10704 (Links to an external site.)

Quentin Reply:

The  two causes of an increasing or decreasing sales number is known as  revenues and expenses. Epstein defined revenue as “how much revenue the  company brought in by selling its products or services” and defined  expenses as “how much the company spent to keep the doors of the  business open” (Epstein, 2014, p. 3.1). This work almost like a checks  and balances system. In order for the company to continue making the  good and providing the services, there are operating costs to ensure  that manufacturing continues.

Ways to increase the gross profit are increasing the sale prices,  sales volume, by applying a reduction in the cost of goods sold. This  will boost profit but there would be no counteraction due to the cost of  goods being lowered. Reasons as to what may explain a decrease in gross  profit, include those operating expenses such as “selling, general, and  administrative expenses, research and development, depreciation and  amortization” (Cain, 2018, Week 3 Lecture). These are expenses that are  necessary for the operation of business, however, financial managers  have to examine the frequency of such and the price tag associated with  it.  Lower selling prices, lower sales volume and an increased cost of  goods sold directly influences the gross profit as well, negatively.

Cain, M. (2018). Week 3 Lecture. Retrieved from    https://ashford.instructure.com/courses/21789/pages/week-3-weekly-lecture?module_item_id=1104022         

Epstein, L. (2014). Financial decision making: An introduction to  financial reports [Electronic version]. Retrieved from  https://content.ashford.edu/