INCOME STATEMENTS:

Target Profit Refer again to the income statements for Cover-to-Cover Company and Biblio Files Company on their respective Income Statement. Note that both companies have the same sales and net income. Answer questions (1) - (3) that follow, assuming that all data for the coming year is the same as the current year, except for the amount of sales. 1. If Cover-to-Cover Company wants to increase its profit by $20,000 in the coming year, what must their amount of sales be? $ 2. If Biblio Files Company wants to increase its profit by $20,000 in the coming year, what must their amount of sales be? $ 3. What would explain the difference between your answers for (1) and (2)? a. Biblio Files Company has a higher contribution margin ratio, and so more of each sales dollar is available to cover fixed costs and provide operating income. b. Cover-to-Cover Company's contribution margin ratio is lower, meaning that it's more efficient in its operations. c. The companies have goals that are not in the relevant range. d. The answers are not different; each company has the same required sales amount for the coming year to achieve the desired target profit. Income Statement - Cover-to-Cover Cover-to-Cover Company Contribution Margin Income Statement For the Year Ended December 31, 2018 Sales $394,000 Variable costs: Manufacturing expense $236,400 Selling expense 19,700 Administrative expense 59,100 (315,200) Contribution margin $78,800 Fixed costs: Manufacturing expense $5,000 Selling expense 4,000 Administrative expense 10,700 (19,700) Operating income $59,100 Income Statement - Biblio Files Biblio Files Company Contribution Margin Income Statement For the Year Ended December 31, 20Y8 Sales $394,000 Variable costs: Manufacturing expense $157,600 Selling expense 15,760 Administrative expense 63,040 (236,400) Contribution margin $157,600 Fixed costs: Manufacturing expense $80,500 Selling expense 8,000 Administrative expense 10,000 (98,500) Operating income $59,100