ADVANCED PROBLEM 2-1 FOR SPREADSHEET APPLICATION 3. Income statement. a. Company A and Company B have taken different approaches to selling glassware. Company A has decided to make glass stemware that sells for a premium at $16.98 per glass. Company B has decided to make a less expensive glassware (without stems) that sells for $11.98 per glass. Last year Company A sold 847,000 stemmed glasses; Company B sold 1,388,000 glasses. Given the following additional in fomation about each fim, construct an income statement for cach company, and see which company had the higher gross marg in (revenue minus cost of goods sold), higher EBIT, higher taxable income, higher net income, and higher OCF. b. Company B is thnking of upgmding the quality of its glassware. Doing so will cause its cost per unit to rise by 18%, but it believes it can mise its price by 25%. Its sales volume will fall by 15% (85% of its cumrent volume). However, letting the market know that it has better-quality glassware will require a doubling of the cument selling, general, and administrative expenses. Using a spreadsheet, redo the income statement for this scenario. Does it improve net income and operating cash flow for Company B? How does the company now compare to Company A? Required: In the spreadsheet, use a separate cell for each piece of in fomation, and then construct the income statement by using a fomula or cell reference for each individual line of the statement. 4. Given Data Company B (without stems) Company A (stemware) 847,000 16.98S 8.17 S 1.245,788.00s 785,038.00 S 1.489.374.00 s 501.030.00ls 37.5% Company B (upgrading quality) 1,179.800 14.98 7.89 1,354,218.00 1.168,862.00 1.137,890.00 698,540.00 37.5% Information Units sold Revenue per unit Cost per unit of glassware Fixed costs Selling, genenal, and administrative expenses Depreciation expense Interest expense Tax rate 1,388.000 11.98 S 6.69 s 10 11 12 1.354,218.00 s 584,431.00 S 1,137,890.00s 698,540.00 S 37.5% 13 14 15 16 17 Solution 18 19 Parts a and b Company A Part a Company B Part b Company B Income Sta tement Revenue Cost of goods sold Gross marg in or profit Fixed costs Selling, general, and administrative expenses Depreciation expense 20 21 22 23 24 1,245,788.00s 785,038.00 S 1.489.374.00S 1,354,218.00s 584,431.00 S L137.890.00S 1,354,218.00 1,168,862.00 1.137,890.00 25 26 27 EBIT Interest expeense 28 Taxable income 29 Taxes Net income Operating cash flow (OCF) 30 31 32 33 a. Given the in fomation about each fim, construct an income statement for the two compan ies, and see which company had the higher gross margin (revenue minus cost of goods sold), higher EBIT, higher taxable income, higher net income, and higher OCF. 34 35 36 EBIT, taxable income, and net income, but it has Company B has gross margin and OCF. 37 b. Company B is thinking of upgading the quality of its glassware. Does it improve net income and operating cash flow for Company B? How does the company now compare to Company A? 38 39 Company B has 40 EBIT, taxable income, net income, gross margin, and OCF afler upgrad ing the glassware quality. 41 42
