Income Statement

Pietro Frozen Foods, Inc., produces frozen pizzas. For next year, Pietro predicts that 53,700 units will be produced, with the following total costs:

Direct materials	?
Direct labor	72,000
Variable overhead	23,000
Fixed overhead	250,000

Next year, Pietro expects to purchase $127,500 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	$6,000	$13,300
Ending	$5,900	$15,300

Next year, Pietro expects to produce 53,700 units and sell 53,000 units at a price of $17.00 each. Beginning inventory of finished goods is $42,500, and ending inventory of finished goods is expected to be $34,000. Total selling expense is projected at $29,500, and total administrative expense is projected at $112,500.

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.

Pietro Frozen Foods, Inc.
Income Statement
For the Coming Year
			Percent
Sales		$	%
Cost of goods sold			%
Gross margin		$	%
Less operating expenses:
Selling expenses	$
Administrative expenses			%
Operating income		$	%

2. What if the cost of goods sold percentage for the past few years was 50.17 percent? Management's reaction might be: