Bobs Bistro produces party$-$sized hoagie sandwiches. For next year, Bobs Bistro predicts that $54,700$ units will be produced with the following total costs:

Direct materials $?$

Direct labor $$61,000$

Variable overhead $26,000$

Fixed overhead $180,000$

Next year, Bobs Bistro expects to purchase $$129,000$ of direct materials. Projected beginning and ending inventories for direct materials and work in process are as follows:

Direct materials

Inventory Work$-$in$-$Process

Inventory

Beginning $$7,000$ $$11,100$

Ending $$6,900$ $$13,100$

Next year, Bobs Bistro expects to produce $54,700$ units and sell $54,000$ units at a price of $$18\mathrm{.}00$ each. Beginning inventory of finished goods is $$44,500,$ and ending inventory of finished goods is expected to be $$36,000.$ Total selling expense is projected at $$26,500,$ and total administrative expense is projected at $$126,500.$

Required:

$1.$ Prepare an income statement in good form. Round the percent to four decimal places before converting to a percentage. For example, $\mathrm{.}88349$ would be rounded to $\mathrm{.}8835$ and entered as $88\mathrm{.}35.$

Bob's Bistro

Income Statement

For the Coming Year

Percent

Sales

$Sales

$972,000$

Sales

$100$

$\%$

Cost of goods sold

Cost of goods sold

Cost of goods sold

$\%$

Gross margin

$Gross margin

Gross margin

$\%$

Less: Operating expenses

Selling expenses

$Selling expenses

$26,500$

Administrative expenses

Administrative expenses

Administrative expenses

Administrative expenses

$\%$

Operating income

$Operating income

Operating income

$\%$

$2.$ What if the operating expenses percentage for the past few years was $38\mathrm{.}42$ percent? Management's reaction might be: