MLC Industries, a computer manufacturer, has in its inventory $80,000 worth of disk-drive housing for a computer line that is now obsolete. The housings can be re-machined to fit a newer line at a cost of $15,000 and then sold for $33,000. MLC Industries' other alternative is to sell the housings as a scrap for $12,000. Rev COGS Example 2: Sale 33,000 -15,000 $18,000 12,000 0 $12,000 Snowshoe, Inc., a manufacturer of ski equipment, has been asked to sell 1,000 pairs of skis to a discount sporting goods shop in Maine for $100 a pair. Snowshoe would not put its name on this special order, and the dealer would therefore sell the skis below their normal retail price. The capacity for Snowshoe is 25,000 pair of skis per year. The company's sales forecast for this year, excluding the special order, is 20,000 pairs at a selling price of $143.75 per unit. Snowshoe's budgeted income statement is: Sales (20,000 pairs) Cost of goods sold Direct materials Budgeted Income Statement Per Unit $143.75 Total $2,875,000 $750,000 622,000 Direct labor $ 37.50 31.10 Factory overhead (40% variable) (40) 34.45 13.7% 689.000 Total $103.05 8238 Gross profit Selling and administrative expenses $ 40.70 27.50 Net income $ 13.20 -Accept because it $2.061,000 less than #100/Unit $ 814,000 550,000 $ 264,000 Example 3: Tim Martin owns men's clothing store in Philadelphia. He was recently offered the position of store manager at Anthony's, a large retail store in the area. Working at Anthony's, Tim would earn an annual salary of $50,000. Tim knows that he could sell the net assets of his business for $140,000 but is uncertain whether to sell the business and manage Anthony's or continue operating his own store. Tim begins his analysis of the two alternatives by examining his store's income statement from last year: Sales $225,000 Cost of goods sold Gross profit 135.000 $90,000 Operating expenses 7,700 50,000 Rent $ 7,200 Employee wages Utilities 17,000 3,640 57,700 Supplies 560 Advertising 1,400 Professional fees 1,050 Insurance 820 Miscellaneous 630 Total operating expenses 32,300 Net income $57.700