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Ann Inc. reports the following in its 2019 annual report. $ thousands 2019 2018 2017 Gross...

Ann Inc. reports the following in its 2019 annual report.

$ thousands

2019

2018

2017

Gross sales

53,647

52,546

52,824

Sales allowance at year end

241.41

189.16

105.65

Calculate the Sales allowance/Gross sales for the past three years and discuss any trend in this metric.

What type of trends are indicated: favorable or unfavorable trend?

Solutions

Expert Solution

First of all, let us know what is the meaning if sales allowance

Sales Allowance - Sales Allowance is the allowance that is foregone from the amount receivable from the buyer for the errors made by the seller In terms of Quality, Quantity, Higher price charged etc . It is pertinent to note that here goods will not be returned to the seller by the buyer.

Calculation of % of sales allowance on sales for the past three years.

Particulars 2019 2018 2017
Gross Sales 53647 52546 52824
Sales Allowance 241.41 189.16 105.65
Sales Allowance/Gross Sales 0.45% 0.36% 0.20%

Here from 2017 to 2019 sales allowance as a percentage of sales has grown from 0.2 to 0.36 to 0.45

Since Sales Allowance are adverse items as it is the amount that is foregone from the customer an increase of the same as a % of gross sales is not favourable. More over this could also lead in loss of customers in the long term and detoriation of profits to the entity

jeff jeffy answered 2 years ago
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