Fatima Company is engaged in the business of women's clothing, sold only in the US. The income

statement of Fatima Co. for the 2016 year is presented below. For 2017, the company is expecting

a growth in revenues as well as in net income. This expansion will be possible, however

only if the following assumptions are correct.

1. Increase the sales of women's clothing in the US by 20% . (You should note that the variable portion of the CGS will also increase by the same percentage)

2. Add men's clothing for the first time in its product line; total of 8,000 men's suits will be sold

in 2017 at an average price of $270 per unit. These coats will be purchased from a South

African company at a price of $180 per unit and sold to only Online customers.

Fatima Company also will offer incentives to customers; customers can buy the suit and a nice silk tie

for a price of only $300. The ties cost the company $8/unit and it is expected that 50% of the men's

market will buy the "package" deal.

3. The cost of goods sold for the existing (US) product line consists of 75% variable and 25%

fixed. (Remember, the fixed amount calculated for 2016 will remain unchanged for 2017 and

only the variable expenses will change with the sales; SAME APPLIES FOR THE OPERATING EXPENSES).

4. The operating expenses for the existing line of business are 45% fixed and 55% variable.

5. The variable operating expenses for the online market (men's suits) will be 20% of the online sales.

6. The fixed operating expenses for the online business (men's suits) will be as follows:

a. Setting up the Webpage: $40,000

b. Monthly advertising $2,000

c. Monthly Legal and professional $500

Unlike the existing business, the CGS of the men's market will be all variable.

2016 Sales (Only US) 955,000 Cost of Sales 573,000 Gross Profit 382,000 Operating Expenses 140,000 Operating Income 242,000 Income Tax (25%) 60,500 Net Income 181,500

REQUIREMENTS:

A. Calculate the net projected income for 2017, assuming the tax rate stays the same.

(Note that the company and not the product lines pay the tax).

B. Calculate the percent change in the profit of the company as a whole from 2016 to 2017 (incresae in profits of 2017 over 2016, in percentage).

C. What was the break even point in units for 2016 (a total of 10,000 units were sold in 2016)

D. What was the degree of operating leverage in 2016?

E. Using the degree of operating leverage calculated in D, project the operating income of 2016, if the sales of 2016 year were 10% more than the actual/existing level of sales.

F. What was the margin of safety; both in dollars and in percentage.

G. All the sale are initially on credit; Company collects 70% of the sales in the year of sales and the remaining 30% in the year following the sale. What will be the average collection period for 2017?

H. Prepare contribution margin income statement for 2016.

I. In 2016, If the company targeted net income of $237,530. what amount of sales it should have generated?