We are now going to dock the financial accounting model of Part 1 with the retail market model that has been developed in Part 2. This step presupposes that you are familiar both with Model 204 that we have just discussed and also with the previous Model 108.

If you skipped the latter because you are already skilled in financial accounting, now is the time to go back to it because otherwise what follows will be difficult to understand. Even if you were diligent with that material, you may want to click on Figure 18.1 for some practice.

The main thing to remember about Model 108 is that none of your decisions interacted with each other. You were permitted to choose whatever level of Sales you wished, and then to choose any Gross Profit percentage, and also to set your expenses (including your Marketing costs) to whatever values you liked, and none of these decisions affected your Unit Volume. The reason for this unrealistic but temporary freedom was, as you will recall, to enable you to become familiar with how the financial accounting framework in a retail business works.