Hollydazzle.Com

Hollydazzle.com

1) The income statement did not account for indirect expenses like insurance and utilities. In addition, SG&A expense of $7,104 does seem to have account for management salaries.

2) A- See Appendix A for the 2000 Projected Annual Operating P&L Statement.

B- Yes, as the sales volume increases HollyDazzle’s profitability will increase. For the foreseeable future, as sales increase HollyDazzle’s fixed cost for the Distribution Center (which has a capacity to handle 300,000 transactions) will remain the same. This cost will increase when HollyDazzle will break the 300,000 transactions threshold. However, until then any increase in sales (with all of the remaining assumptions being the same) will cause the profitability to increase, as this cost will be allocated among more sales transactions.

3) In 1999 Hollydazzle will spend about 7% of revenues in warehousing expenses. Paying 6% to Moov seem like a good choice. However, in 2000, if sales increase by 50% of the 1999 level, the warehousing expense will only equal to 4.5%. In such a case Hollydazzle should keep the warehousing function internally. In addition, the management should consider other variables such as the level of service the Moov will be able to provide to Hollydazzle customers. Perhaps Moov can ship the goods faster and from multiple regions of the country, which will result in higher customer satisfaction. Or Moov might be slow in shipping and may not be able to manage Hollydazzle orders properly. In such a case, Hollydazzle would rather keep this function internal.

4)

5) Hollydazzle’s actual gross margin was -3.9% (see Appendix B). Hollydazzle’s actual sales per transaction were $9.00 compare to the forecast of $9.25. This resulted in $12,500 in fewer sales. In addition, Hollydazzle’s merchandise cost was $8.75 compare to the forecast of $8.50. The increased merchandise cost resulted in an additional $12,500 expense. Summed up together, this resulted in a...