17. full costing Ralph’s Venture finds Ralph in a startup company. Ralph has prepared a business plan and a venture capitalist has agreed to provide the necessary funds. Ralph’s business plan rests on the following cost and revenue structures, where qm denotes units manufactured and qs denotes units sold.

manufacturing cost TMC = 400, 000 + 80qm selling and administrative cost S&A = 200, 000 + 20qs total revenue TR = 700qs The business plan called for production and sale of 1, 000 units in the first period, with steadily growing sales thereafter. The venture capitalist also required that Ralph present an audited financial statement at the end of each period. This statement was to be produced according to GAAP, using actual, full costing. During the first period, the estimated cost and revenue structures turned out to be exact.

Ralph’s Venture produced qm = 1, 200 units and sold qs = 900 units.

(So manufacturing cost totaled 496, 000, S&A totaled 218, 000; and revenue totaled 630, 000.) The venture capitalist now examines the financial statement prepared according to GAAP. It is much better than anticipated, and the venture capitalist turns to the telephone to call some friends and boast about Ralph’s Venture.
Determine the income that was projected for the first year in Ralph’s business plan and the income that was actually reported to the venture capitalist. Critically comment on the report and the venture capitalist’s enthusiasm.