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 CategoryExpense Amount
Buying salaries: $125,000 Selling salaries: $275,000 Advertising: $90,000 Receiving and marking: $15,000 Wrapping and packing: $10,000
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.
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.