Chapter 1, Problem 52P

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 D
Projected Income Statement
For One Year
	Status Quo:	% Increase	Alternative
	Single Product	(Decrease)	Two Products	Difference
Sales revenue	$375,000 (a)	20% (b)	$450,000	$75,000 (c)
Costs
Equipment lease	$100,000	10%	$110,000	$10,000
Labor	72,000 (d)	30% (e)	$93,600	$21,600 (f)
Rent	12,500 (g)	20%	$15,000	$2,500 (h)
Depreciation	$20,000	5%	$21,000 (i)	$1,000 (j)
Utilities	$55,000	(k)	l	(m)
Other	$20,000	(n)	o	(p)
Total costs	$279,500(q)		$330,600 (r)	$51,100 (s)
Operating profit	$95,500		$119,400 (t)	$23,900

Table (1)

Working note 1:

Compute the value of (a):

$\begin{array}{c}\begin{array}{l}\text{Sales revenue of}\\ \text{current service (a)}\end{array}\}=\text{Total costs (q)}+\text{operating profit}\\ =\$279,500+\$95,500\\ =\$375,000\end{array}$

Working note 2:

Compute the value of (b):

$\begin{array}{c}\begin{array}{l}\text{Sales revenue \% of}\\ \text{enchante services}\left(\text{b}\right)\end{array}\}=\left(\frac{\text{Sales revenue of enhanced services}}{\text{Sales revenue of current services}}\right)-1\\ =\left(\frac{\text{\$450,000}}{\text{375,000}}\right)-1\\ =1.2-1\\ =0.2\text{ or }20\%\end{array}$

Working note 3:

Compute the value of (c):

$\begin{array}{c}\begin{array}{l}\text{Sales revenue}\\ \text{difference}\left(\text{c}\right)\end{array}\}=\left[\left(\begin{array}{l}\text{Sales revenue of}\\ \text{enhanced services}\end{array}\right)-\left(\begin{array}{l}\text{Sales revenue of}\\ \text{current services}\end{array}\right)\right]\\ =\left(\text{\$450,000}-\text{375,000}\right)\\ =\$75,000\end{array}$

Working note 4:

Compute the value of (d):

$\begin{array}{c}\begin{array}{l}\text{Labor costs of}\\ \text{current service}\left(\text{d}\right)\end{array}\}=\left(\begin{array}{l}\text{Labor costs of enhanced}\\ -\text{Difference in Labor costs}\end{array}\right)\\ =\text{\$93,600}-\$21,600\\ =\$72,000\end{array}$

Working note 5:

Compute the value of (e):

$\begin{array}{c}\text{Labor \%}\left(\text{d}\right)=\left(\frac{\text{Labor costs of enhanced}}{\text{Labor costs of current}}\right)-1\\ =\left(\frac{\text{\$93,600}}{\$72,000}\right)-1\\ =1.30-1\\ =0.30\text{ or }30\%\end{array}$

Working note 5:

Compute the value of (f):

$21,600 is given in the problem.

Working note 6:

Compute the value of (g):

$\begin{array}{c}\begin{array}{l}\text{Rent of current}\\ \text{service}\left(\text{g}\right)\end{array}\}=\frac{\text{Rent of enhanced}}{100+20\%}\\ =\frac{\text{\$15,000}}{1.2}\\ =\text{\$12,500}\end{array}$

Working note 6:

Compute the value of (h):

$\begin{array}{c}\text{Rent \%}\left(\text{h}\right)=\frac{\text{Rent of enhanced}-\text{Rent of current service}}{100+20\%}\\ =\text{\$15,000}-\$\text{12,500}\\ =\text{\$2,500}\end{array}$

Working note 7:

Compute the value of (i):

$\begin{array}{c}\text{Depreciation of enhanced}\left(\text{i}\right)=\left[\begin{array}{l}\text{Depreciation of current}\\ \times \left(100\%+5\%\right)\end{array}\right]\\ =\text{\$20,000}\times 1.05\\ =\text{\$21,000}\end{array}$

Working note 8:

Compute the value of (j):

$\begin{array}{c}\text{Depreciation \%}=\left[\begin{array}{l}\text{Depreciation of current}-\\ \text{Depreciation of enhanced}\end{array}\right]\\ =\text{\$21,000}-\text{\$21,000}\\ =\text{\$1,000}\end{array}$

Working note 9:

Compute the value of (k-p):

The values from “k” to “p” cannot be determined separately. The total cost for utilities and other labor under enhanced service can be calculated as $91,000$\left(\$330,600–\$110,000–\$93,600–\$15,000–\$21,000\right)$, however it cannot be separated into the two components. Likewise, the increase or decrease and difference between the two alternatives can be determined without the value of enhanced service.