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CASE STUDY – FRED’S PHARMACY

Fred’s pharmacy is located in a large suburban shopping centre and is one of two in the centre. The pharmacy is 300m2 and employs 12 staff. Usually 6 staff are rostered at any one time. The pharmacy employs three pharmacists, two of which are on at any one time. On a usual day the pharmacy serves around 250 customers, has an average basket of ~\$20 and dispenses around 200 scripts.

With this information in mind, and the Income Statement provided to you below prepare answers to the following questions for submission. Most questions correspond with data lettered a-i in the notes columns of the Income Statement

ANALYSING P&L’s

Calculate the missing figures and subsequent ratios (b and i) for all the years.

Following this, work through and prepare answers to the following questions:

1. Calculate the percentage growth in total sales over the three consecutive years from 2011/12 to budgeted 2014/2015. (3)
2. Note the increase in advertising expenses in 2013/14. Discuss possible reasons and the effect of this. (3)
3. Discuss the Rent/Sales Ratio for each of the three years. Note how this changes as sales change. What are some strategies for reducing the rent/sales ratio? (5)
4. Note and discuss the decrease in bank interest over the three years. (3)
5. Discuss the Staff/Sales Ratio for the three years. Note how this changes as sales change. Discuss whether you think total staff expenses should be considered in this ratio or simply wages and salaries. (5)
6. Discuss the changes in IT expenses for the 3 years and proposed budget year. What are possible reasons for these changes? (3)
7. Discuss potential reasons for the decrease in telephone expenses in the year 2013/2014. (3)
8. Comment on why despite an increase in total sales in 2013/14 Net Profit (%) decreased when compared to other years. (2.5)
9. Discuss the effect of renovating the pharmacy on Gross Profit % and Net Profit %. (2.5)

Total 30 marks

Pharmacy

ACTUAL 2011/2012

ACTUAL

2012/2013

ACTUAL

2013/2014

Budget

2014/2015

Notes

INCOME

Total Income

\$3,450,000

\$3,500,000

\$3,900,000

\$ 4,000,000

a

Total Cost of Goods Sold

\$2,300,000

\$2,250,000

\$2,705,500

\$ 2,600,000

Gross Profit

GROSS PROFIT %

b

EXPENDITURE

Operating Expenses

Accounting Fees

\$9,500

\$8,300

\$7,800

\$ 8,000

\$14,500

\$12,500

\$17,000

\$ 40,000

c

Bank Charges

\$12,560

\$16,334

\$14,300

\$ 15,000

Bank Interest

\$35,050

\$32,820

\$27,989

\$ 30,000

e

Book Keeping

\$9,800

\$10,500

\$11,300

\$ 12,000

\$3,600

\$4,500

\$4,500

\$ 4,500

Cleaning

\$1,230

\$1,150

\$1,149

\$ 1,200

Commission Diners/Amex

\$3,636

\$3,858

\$2,069

\$ 4,000

Donations

\$950

\$1,060

\$1,150

\$ 1,000

Fittings Lease/Storage/Hire

\$1,190

\$1,560

\$1,480

\$ 2,000

Freight

\$450

\$620

\$490

\$ 500

IT Expenses

\$2,800

\$780

\$7,330

\$ 2,000

g

Legal Fees

\$0

\$878

\$450

\$ 500

Packing & Wrapping Materials

\$625

\$900

\$460

\$ 1,000

Postage

\$2,800

\$2,765

\$3,263

\$ 3,000

Rent & Outgoings

\$250,077

\$260,080

\$269,000

\$ 270,000

d

Stationery

\$3,345

\$3,165

\$2,900

\$ 3,000

Subscriptions

\$1,060

\$980

\$1,055

\$ 1,000

Security

\$606

\$461

\$780

\$ 800

Telephone

\$12,530

\$9,500

\$5,625

\$ 6,000

h

Electricity

\$8,500

\$8,600

\$8,685

\$ 9,000

Travel Expenses

\$3,895

\$4,615

\$3,950

\$ 4,000

Motor Vehicle

\$3,840

\$3,565

\$3,795

\$ 4,000

Total Operating Expenses

\$382,545

\$389,491

\$396,520

\$ 422,500

Employment Expenses

Staff Amenities

\$3,560

\$4,200

\$3,690

\$ 4,000

Staff Training

\$2,055

\$1,560

\$1,595

\$ 2,000

Superannuation

\$29,543

\$28,622

\$31,541

\$34,876

Wages & Salaries

\$328,252

\$318,025

\$350,451

\$ 387,512

W/Comp Ins

\$4,907

\$4,846

\$5,301

\$ 5,500

Uniforms

\$1,650

\$785

\$1,955

\$ 2,000

Rewards/Bonuses

\$3,860

\$3,250

\$3,750

\$ 4,000

Total Employment Expenses

\$373,827

\$361,288

\$398,282

\$ 439,888

f

Total Expenses

\$756,372

\$750,779

\$794,803

\$862,388

Net Taxable Profit

NET PROFIT %