List of options for Part b.

*Problem 10-1 (Part Level Submission) The results of operations for the Preston Manufacturing Company for the fourth quarter of 2014 were as follows: Sales Less variable cost of sales $570,000 342,000 228,000 Contribution margin Less fixed production costs Less fixed selling and administrative expenses Income before taxes Less taxes on income $ 114,000 57,000 171,000 57,000 22,800 $ 34,200 Net income Note: Preston Manufacturing uses the variable costing method. Thus, only variable production costs are included in inventory and cost of goods sold. Fixed production costs are charged to expense in the period incurred The company's balance sheet as of the end of the fourth quarter of 2014 was as follows: Assets: Cash Accounts receivable Inventory Total current assets Property, plant, and equipment Less accumulated depreciation $ 191,000 285,000 374,000 850,000 450,000 142,000 $1,158,000 Total assets Liabilities and owners' equity: Accounts payable Common stock Retained earnings $68,400 540,000 549,600 $1,158,000 Total liabilities and owners' equity Additional information: 1. Sales and variable costs of sales are expected to increase by 10 percent in the next quarter 2. All sales are on credit with 50 percent collected in the quarter of sale and 50 percent collected in the following quarter 3. Variable cost of sales consists of 40 percent materials, 40 percent direct labor, and 20 percent variable overhead. Materials are purchased on credit. 50 percent are paid for in the quarter of purchase, and the remaining amount is paid for in the quarter after purchase. The inventory balance is not expected to change. Also, direct labor and variable overhead costs are paid in the quarter the expenses are incurred 4. Fixed production costs (other than $8,000 of depreciation expense) are expected to increase by 2 percent. Fixed production costs requiring payment are paid in the quarter they are incurred 5. Fixed selling and administrative costs (other than $8,000 of depreciation expense) are expected to increase by 2 percent. Fixed selling and administrative costs requiring payment are paid in the quarter they are incurred 6. The tax rate is expected to be 40 percent. All taxes are paid in the quarter they are incurred 7. No purchases of property, plant, or equipment are expected in the first quarter of 2015