ACCOUNTING-Lambert Department Store is located in midtown Metropolis

Lambert Department Store is located in midtown Metropolis. During the past several years, net income has been declining because suburban shopping centers have been attracting business away from city areas. At the end of the company’s fiscal year on November 30, 2012, these accounts appeared in its adjusted trial balance.Accounts Payable $ 26,800Accounts Receivable 17,200Accumulated Depreciation—Equipment 68,000Cash 8,000Common Stock 35,000Cost of Goods Sold 614,300Freight-Out 6,200Equipment 157,000Depreciation Expense 13,500Dividends 12,000Gain on Disposal of Plant Assets 2,000Income Tax Expense 10,000Insurance Expense 9,000Interest Expense 5,000Inventory 26,200Notes Payable 43,500Prepaid Insurance 6,000Advertising Expense 33,500Rent Expense 34,000Retained Earnings 14,200Salaries and Wages Expense 117,000Sales Revenue 904,000Salaries and Wages Payable 6,000Sales Returns and Allowances 20,000Utilities Expense 10,600Additional data: Notes payable are due in 2016.The vice president of marketing and the director of human resources have developed a proposal whereby the company would compensate the sales force on a strictly commission basis. Given the increased incentive, they expect net sales to increase by 15%. As a result, they estimate that gross profit will increase by $40,443 and expenses by $58,600. Compute the expected new net income. (Hint: You do not need to prepare an income statement.) Then, compute the revised profit margin and gross profit rate. Comment on the effect that this plan would have on net income and on the ratios, and evaluate the merit of this proposal. (Ignore income tax effects.)

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