Homework SourseIncome Statement For the Year Ended December 31 2018 Sales 8
Income Statement
For the Year Ended December 31, 2018
Sales $8,500,000
Manufacturing Expenses
Variable $3,250,000
Fixed overhead 640,000 3,890,000
Gross Margin $4,610,000
Selling and administrative expenses
Commissions $580,000
Fixed marketing expenses 300,000
Fixed admin expenses 450,000 1,330,000
Net Operating Income $3,280,000
Fixed Interest expenses 230,000
Income before Taxes $3,050,000
Income Taxes (21%) 640,500
Net Income $2,409,500
Your company is considering out-sourcing the sales and marketing to an agency specializing in these types of sales. The outsourcing would remove the commissions, reduce the marketing by $270,000, and reduce the fixed administrative expenses by $35,000. The out-sourcing firm, Jangler Marketing, will charge a fee of 14% of sales. Jangler requires a 3-year contract. Jangler believes that it can increase sales by 10% for 2019 and 13% each year after (2020 and 2021). The company believes that with its current sales and marketing staff, sales will increase by 8% for 2019 and 9% in each year after (2020 and 2021).
1.Prepare contribution format projected income statements for 2019, 2020 & 202a assuming the company hires Jangler Marketing.
2.Prepare contribution format projected income statements assuming the outsourcing is rejected.
Solution
Solution 1:
Solution 2:
| Projected Contribution margin Income Statement - Assuming company hires Jangler Marketing | |||
| Particulars | 2019 | 2020 | 2021 |
| Sales 2019 - $8,500,000*110% 2020 - ($8,500,000*110%)*113% 2021 - ($8,500,000*110%)*113%*113% | $9,350,000 | $10,565,500 | $11,939,015 |
| Variable Cost: | |||
| Variable manufacturing Expense (32.50/85*100 = 38.23529% of Sales) | $3,575,000 | $4,039,750 | $4,564,917 |
| Fee of outsourcing firm (14% of Sales) | $1,309,000 | $1,479,170 | $1,671,462 |
| Contribution | $4,466,000 | $5,046,580 | $5,702,636 |
| Fixed Cost: | |||
| Fixed Overhead | $640,000 | $640,000 | $640,000 |
| Fixed Marketing Expenses ($300,000 - $270,000) | $30,000 | $30,000 | $30,000 |
| Fixed administrative Expense ($450,000 - $35,000) | $415,000 | $415,000 | $415,000 |
| Earning Before Interest & Taxes (EBIT) | $3,381,000 | $3,961,580 | $4,617,636 |
| Fixed Interest Expense | $230,000 | $230,000 | $230,000 |
| Earning Before Taxes (EBT) | $3,151,000 | $3,731,580 | $4,387,636 |
| Income Tax (21%) | $661,710 | $783,632 | $921,404 |
| Net Income | $2,489,290 | $2,947,949 | $3,466,232 |
