Box Trotters Inc. was born when two baby boomers recognized the lack of ballroom dancing skills in today$$s youngsters. Tom and Edna quickly realized that they could teach young adults $($and older adults$)$ how to dance very quickly if the learners had visual assistance. In the process of working through their approach, they designed and patented a $10\backslash$times $10$ lightweight mat that could be unrolled, revealing visual markers of where dancers should move their feet on the next musical beat. Soon, many a grandchild felt compelled to keep his or her grandparents$$ slide steps alive.

Box Trotters Inc. incurred the following costs last year in its production and sale of $32,000$ dance mats.

Cost Description

$$

Amount

$$

Product or Period

$$

Variable or Fixed

Depreciation on factory

$$

$ $50,000$

$$

$$

$$

$$

Executive salaries

$$

$130,000$

$$

$$

$$

$$

Direct material costs

$$

$325,000$

$$

$$

$$

$$

Administrative salaries

$$

$79,000$

$$

$$

$$

$$

Wages for factory workers

$$

$432,500$

$$

$$

$$

$$

Advertising expense

$$

$39,500$

$$

$$

$$

$$

Indirect materials

$$

$66,000$

$$

$$

$$

$$

Factory supervisor salaries

$$

$90,000$

$$

$$

$$

$$

Commissions to salespeople

$$

$55,000$

$$

$$

$$

$$

Required

Fill in the last two columns of the chart, identifying whether each cost is a product cost or period cost, and also whether the behavior of each cost is variable or fixed.

The above cost information was incurred last year when the $32,000$ units were sold at an average selling price of $$46/$unit$.$ In Excel, create two income statements in good form: $(1)$ a traditional gross margin format income statement, and $(2)$ a contribution margin format income statement. Referencing the appropriate information and utilizing formulas within Excel, populate each of the income statements to determine operating income for Box Trotters under both income statement formats.

Comment on any noticeable similarities or differences in the bottom$-$line amounts of these two income statements.

Now assume that Box Trotters expects very similar sales volume, selling price, and costs next year, except that its factory wages will increase by $5\%,$ as will the commissions to salespeople. Determine projected gross margin, contribution margin, and operating income for Box Trotters given these assumptions. Explain your results in comparison to last year$$s performance.