Jane,Rayna,andShivastartedJRSInc.togetherfiveyearsago.JRSInc.makesleatherpursestargetedatprofessionalwomen.WhileShivaisdevotedfulltimetothebusiness,JaneandRaynaarelawyerswithdemandingcareers.Thethreeofthemmetinanundergraduateentrepreneurshipclass,andhavebeenfriendsandbusinesspartnerssincethen.JRSInc.hasbeenmakingprofitsandexpanding.Shivaisnotsurethathecanpullthisoffwithoutafulltimecommitmentfromhistwofriends.JaneandRaynaareinterestedinmakingafulltimeswitchtothebusinessiftheincomefromthebusinessissufficientlyhighthattheycangiveuptheirlucrativesalaries.Theywanttodivedeeperintothenumbersandunderstandwhatdifferentbusinessconditionswouldmeanfortheirbottomline.Theywouldliketheoperatingincometobearound$1,500,000toconsidermakingafulltimeswitch.Theyhavemanyquestionsthatneedtobeanswered.TheyaskedShivatogivethemsomedata.Shivaprovidedthemwiththefollowingdetails.JRSInc.sellswhateveritmakes.Thereisnoworkinprocessorfinishedgoodsinventory.Shivahascollectedsomedatarelatingtothemostrecentyear.Theyincurredmanufacturingcostsof$3,240,000duringtherecentyearwhichincludes$1,200,000formaterials,$800,000forlaborand$1,240,000forothermanufacturingcosts(depreciation,factoryrentandmiscellaneous).Thematerialsandthelaborcanbetracedtoeachpurse.Theothermanufacturingcostsincreasewiththevolumeofpursesbutnotinanexactproportion.JRSInc.paystheirsalesstaffcommissionsof10%onthesalesprice.Theirothergeneraladministrativeexpensesare$960,000ayear.JRSInc.manufacturedandsold12,000leatherpursesatasellingpriceof$500perpurseduringtherecentyear.Shivaisconsideringexpandingtheirproductlinebyaddingleatherbriefcasestotheirproductline.ThemarketingconsultantthatShivahiredconcludedthatthereisdemandfortheirleatherpursesandleatherbriefcases.Whatisthecurrentprofitability?Prepareanincomestatementforthecompanyinasimplifiedfunctionalformat.

Income Statement Format Amounts Sales Less: Cost of goods sold Gross margin Less: Selling, general & administrative expenses Operating Income