The Owner of a Small Retail Business Asks, "Why Do

question 65

Essay

The owner of a small retail business asks, "Why do I need cost accountants? My CPA produces financial statements, which are sufficient for me to discover my costs. Look at my Income Statement. I expect sales to increase by 10% next year, so I am planning on a 10% increase in profits. I don't need a cost accountant to tell me that."
$\begin{array}{c}\text { Income Statement for the Year}\\\text { Ending December 31}\\\begin{array}{lr}\text { Sales Revenue }& \$ 457,234 \\\text { Cost of Goods Sold }&296,348 \\ \text { Gross Margin } & 160,886 \\ \text { Selling Costs } & 76,234 \\ \text { Administrative Costs } & 62,350 \\\text { Profit before Taxes }&\$22,302\end{array}\end{array}$
Use your knowledge of the concept of differential costs and explain why a cost accountant would question the conclusion that a 10% increase in sales would yield a 10% increase in profit.

---

Definitions:

Retail Storage

The process or space used for the keeping and management of goods or merchandise in stores.

Service Factor

A measure of service level performance, often used in inventory control to determine the appropriate amount of safety stock to meet a specified service level.

Product Availability

A measure of the extent to which goods or services are ready for sale and can be purchased by consumers.

Online Sales

The process of selling goods and services through the internet, enabling transactions to be completed digitally.