Reference no: EM132471370

As a manager or business owner, you will face many difficult decisions. Review the following scenario for a major specialty retailer based in the United States. The jewelry department had net sales of $1 million. The direct expenses during the period under consideration were:

Expense Category    Expense Amount

Buying salaries:            $125,000

Selling salaries:              $275,000

Advertising:                    $90,000

Receiving and marking:      $15,000

Wrapping and packing:         $10,000

Question 1: The gross margin achieved during this time was 48.0%. After reviewing this performance, management decided that expenses must be reduced. The manager was given the choice of either (1) reducing the advertising budget to a maximum of $50,000 or (2) eliminating a salesperson, which would reduce selling salaries by $50,000.

Question 2: In your initial post, discuss which plan of action you would choose and why. Explore the two options mathematically, and then state your choice. Justify your decision. Discuss the impact your strategy will have on net profit.