Exercise 1 Faulty Products Inc. expects to incur into the following expenses in 2018: Direct materials (variable) Direct labor (variable) Manufacturing overhead (fixed) 12,400 9,800 C 36,600 . Selling and advertising costs (variable) 6,900 Selling and marketing costs (fixed) 12,000 Other operating expenses (fixed) 140,000 6,000 . Income tax expense 30% of pre-tax income . . Interest expenses During the year, the company plans to manufacture 2,450 units of finished goods and to sell 2,315 units at 95 each, The company also distributes 22 units of products for promotion. At the end of the year, the company believes that 25% of sales will not be collected yet, given that accounts receivable at that date usually represent 90 days of sales. The company has the policy of calculating a 7.5% allowance for doubtful accounts on its accounts receivable (not included in the costs listed above). Depreciation and amortization charges represent 20% of Manufacturing overhead, 5% of fixed Selling and marketing expenses, and 10% of Other operating expenses. Required: 1. Prepare the income statement using the cost of goods sold format, clearly showing the EBIT; 2. Prepare the income statement using the total output format, clearly showing the EBITDA and the EBIT 3. Prepare the contribution margin income statement, using both the cost of goods sold and 4. Determine the break-even point in units and the margin of safety at the current level of sales. the total output format