Chapter 1, Problem 46P

Cost Data for Managerial Purposes—Finding Unknowns

Quince Products is a small company in southern California that makes jams and preserves. Recently, a sales rep from one of the company’s suppliers suggested that Quince could increase its profitability by 50 percent if it introduced a second line of products, packaged fruit. She offered to do the analysis and show the company her assumptions.

When Quince’s management opened the spreadsheet sent by the sales rep, they noticed that there were several blank cells. In the meantime, the sales rep had taken a job with a competitor and told the managers at Quince that she could no longer advise them. Although they were not sure they should rely on the analysis, they asked you to see if you could reconstruct the sales rep’s analysis. They had been considering this new business already and wanted to see if their analysis was close to that of an outside observer. The incomplete spreadsheet follows.

Required

Fill in the blank cells.

To determine

Fill in the blank cells of the projected income statement.

Explanation of Solution

Projected income statement: The projected income statement represents the future financial position of the entity. The projected income statement is prepared with an objective of showing the financial results for a future period of time.

Fill in the blank cells of the projected income statement:

Company Q
Projected Income Statement
For One Month
	Status Quo:	% Increase	Alternative
	Single Product	Decrease	Two Products	Difference
Sales revenue	$         10,000 (d)	30%	$        13,000	$     3,000 (e)
Costs
Material	$           2,000	40%	$          2,800	$        800
Labor	$           2,500 (k)	20%	$          3,000 (m)	$        500 (o)
Rent	$           1,800 (l)	0%	$          1,800 (n)	-          (p)
Depreciation	$              400	25%	$             500	$        100
Utilities	$              200	25%	$             250 (h)	$          50 (i)
Other	$              700	50% (j)	$          1,050	$        350
Total costs	$           7,600		$          9,400 (g)	$     1,800 (f)
Operating profit	$           2,400 (a)		$          3,600 (b)	$     1,200 (c)

Working note 1:

Compute value of (a):

It is given that the profit has increased by 50%, (a) represent the % increase or decrease in profit.

$\text{(a}\text{)}\text{=}\text{50\%}$

Working note 2:

Compute value of (b):

$\begin{array}{c}\left(\text{b}\right)\text{=}\text{\$2,400}\text{×}\text{150\%}\\ \text{=}\text{\$3,600}\end{array}$

Working note 3:

Compute value of (c):

$\begin{array}{c}\left(\text{c}\right)\text{=}\text{\$3,600}\text{-}\text{\$2,400}\\ \text{=}\text{\$1,200}\end{array}$

Working note 4:

Compute value of (d):

$\begin{array}{c}\left(\text{d}\right)\text{=}\text{\$13,000}\text{×}\frac{\text{100}}{\text{130}}\\ \text{=}\text{\$10,000}\end{array}$

Working note 5:

Compute value of (e):

$\begin{array}{c}\left(\text{c}\right)\text{=}\text{\$13,000}\text{-}\text{\$10,000}\\ \text{=}\text{\$3,000}\end{array}$

Working note 5:

Compute value of (f):

$\begin{array}{c}\left(\text{c}\right)\text{=}\left(\text{e}\right)-\left(\text{c}\right)\\ \text{=}\text{\$3,000}\text{-}\text{\$1,200}\\ \text{=}\text{\$1,800}\end{array}$

Working note 6:

Compute value of (g):

$\begin{array}{c}\left(\text{f}\right)\text{=}\$13,000-\left(\text{b}\right)\\ \text{=}\text{\$13,000}\text{-}\text{\$3,600}\\ \text{=}\text{\$9,400}\end{array}$

Working note 6:

Compute value of (h):

$\begin{array}{c}\left(\text{d}\right)\text{=}\text{\$200}\text{×}\frac{\text{125}}{\text{100}}\\ \text{=}\text{\$250}\end{array}$

Working note 7:

Compute value of (i):

$\begin{array}{c}\left(\text{c}\right)\text{=}\text{\$250}\text{-}\text{\$200}\\ \text{=}\text{\$50}\end{array}$

Working note 8:

Compute value of (j):

$\begin{array}{c}\left(\text{j}\right)\text{=}\frac{\$350}{\text{700}}\times 100\\ \text{=}\text{\$50\%}\end{array}$

Working note 8:

Compute value of (k):

Labor plus rent (single product):

$\begin{array}{c}\text{Labor}\text{+}\text{Rent}\left(\text{Single}\text{product}\right)=\$7,600-\$2,000-\$400-\$200-\$700\\ =\$4,300\end{array}$

Labor plus rent (two products):

$\begin{array}{c}\text{Labor}\text{+}\text{Rent}\left(\text{Single}\text{product}\right)=\$9,400-\$2,800-\$500-\$250-\$1,050\\ =\$4,800\end{array}$

Increase in labor:

$\begin{array}{c}\text{Increase}\text{in}\text{labor}=\$4,800-\$4,300\\ =\$500\end{array}$

Thus,

$\begin{array}{c}\left(\text{k}\right)\text{=}\text{\$500}\text{×}\frac{100}{\text{20}}\\ \text{=}\text{\$2,500}\end{array}$

Working note 8:

Compute value of (l):

$\begin{array}{c}\left(\text{c}\right)\text{=}\text{\$4,300}\text{-}\text{\$2,500}\\ \text{=}\text{\$1,800}\end{array}$

Working note 8:

Compute value of (m):

$\begin{array}{c}\left(\text{m}\right)\text{=}\text{\$2,500}+\text{\$500}\\ \text{=}\text{\$3,000}\end{array}$

Working note 9:

Compute value of (n):

$\begin{array}{c}\left(\text{n}\right)\text{=}\text{\$1,800}-\text{\$0}\\ \text{=}\text{\$1,800}\end{array}$

Working note 10:

Compute value of (o):

$\begin{array}{c}\left(\text{o}\right)\text{=Increase}\text{in}\text{labor}\\ =\$500\end{array}$

Working note 11:

Compute value of (p):

$\begin{array}{c}\left(\text{p}\right)\text{=}\text{\$1,800}-\text{\$1,800}\\ \text{=}\text{\$0}\end{array}$