Income Statement

Bobs Bistro produces party-sized hoagie sandwiches. For next year, Bobs Bistro predicts that 50,000 units will be produced with the following total costs:

Direct materials	?
Direct labor	$100,000
Variable overhead	60,000
Fixed overhead	260,000

Next year, Bobs Bistro expects to purchase $195,500 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	$9,500	$4,500
Ending	5,000	2,500

Next year, Bobs Bistro expects to produce 50,000 units and sell 50,500 units at a price of $20.00 each. Beginning inventory of finished goods is $13,000, and ending inventory of finished goods is expected to be $10,000. Total selling expense is projected at $130,000, and total administrative expense is projected at $154,000.

Required:

1. Prepare an income statement in good form. Round the percent to four decimal places before converting to a percentage. For example, .88349 would be rounded to .8835 and entered as 88.35.

Bob's Bistro
Income Statement
For the Coming Year
			Percent
Sales
Cost of goods sold
Gross margin
Less: Operating expenses
Selling expenses
Administrative expenses
Operating income

1. See Example 2.4

2. What if the operating expenses percentage for the past few years was 20 percent? Management's reaction might be:

Investigate production cost management