Last

Year
$

Gross Sales

220,000

Customer Returns

19,140

Net Sales

200,860

100.0%

Cost of Merchandise Sold

96,413

48.0%

Gross Margin

104,447

52.0%

Operating Expenses

84,361

42.0%

Operating Profit

20,086

10.0%

Square Footage

1,500

Sales per Square Foot

$ 134

8.7%

Option 1
$

Gross Sales

270,000

Customer Returns

19,140

Net Sales

250,860

100.0%

Cost of Merchandise Sold

111,633

44.5%

Gross Margin

139,227

55.5%

Operating Expenses

110,378

44.0%

Operating Profit

28,849

11.5%

Square Footage

2,000

Sales per Square Foot

$ 125

Option 2
$

Gross Sales

252,000

Customer Returns

25,704

Net Sales

226,296

10.2%

100.0%

Cost of Merchandise Sold

110,885

49.0%

Gross Margin

115,411

51.0%

Operating Expenses

95,044

42.0%

Operating Profit

20,367

9.0%

Square Footage

1,500

Sales per Square Foot

$ 151

1. What points would you raise with Lauren to help her make the appropriate decision?
- Option #1 has a greater profit than option #2. With option #1, her profit is 11.5%, whereas
option #2 is 9.0%. However, with Option #1, Lauren has to invest $10,000 in fixtures and
marketing and promotional materials, which could ultimately lower her overall profit
percentage.
- Option #2 has greater sales per square feet than option #1. Option #2 has $151 sales per square
feet, while option #1 only has $125 sales per square feet.
- Option #1 has much higher expenses than option #2, which could factor into Laurens decision
making.
- Lauren will be spending more money overall in Option #1.
- Since the textbook is not clear whether Option #1 has included the $10,000 that Lauren must
invest, I have excluded it from the chart. However, if I include the $10,000 and minus that from
the profit, then the profit in Option #1 wouldnt be as high as it is, therefore Option #2 might be
the better decision for Lauren.

2. What recommendations would you make to Lauren if she were to choose the eco-friendly
line?
- The vendor is asking Lauren to expand the current space by 500 square feet for the new line.
However, if Lauren was to choose Option #1, I would recommend that she use the space that
she already has rather than expanding her space because she will ultimately loose more sales
per square feet with the extended space. If Lauren keeps the space the same, she will earn more
sales per square feet and therefore Option #1 will be the most profitable option overall.
- However, if Lauren is confident that her customers will purchase the new eco-friendly line (as it
has shown in the new net sales in Option #1) then perhaps the added expense of creating
additional space will be worth it in the long run.

3. What choice would you make? Explain your answer fully.
- I would choose Option #1 because overall it looks more promising and seems like customers will
prefer the eco-friendly option over the expansion of shoes and accessories in Option #2. This is
justified by the increase in Gross Sales, Net Sales, and overall profit in Option #1. Additionally,
Option #1 has less customer returns than Option #2, which is an indicator of customer
satisfaction with the merchandise.
- Although Option #1 has more expenses, as I mentioned before, the added expenses might be
worth the growth in sales and overall profits over time.
- If I were to make this decision, however, I would not expand the current space. Instead, I would
take advantage of the space I have, which would increase my sales per square foot. In this
situation, it would be a win-win for everyone because the customers would be satisfied with the
boutiques selection, and I would earn greater sales and profits.

-
-

I would choose Option #1 because overall it looks more promising and seems like customers will
prefer the eco-friendly option over the expansion of shoes and accessories in Option #2. This is
justified by the increase in Gross Sales, Net Sales, and overall profit in Option #1. Additionally,
Option #1 has less customer returns than Option #2, which is an indicator of customer
satisfaction with the merchandise.
Although Option #1 has more expenses, as I mentioned before, the added expenses might be
worth the growth in sales and overall profits over time.
If I were to make this decision, however, I would not expand the current space. Instead, I would
take advantage of the space I have, which would increase my sales per square foot. In this
situation, it would be a win-win for everyone because the customers would be satisfied with the
boutiques selection, and I would earn greater sales and profits.