Olin Company manufactures and distributes carpentry tools. Production of the tools is in the mature portion of the product life cycle. Olin has a sales force of 20. Salespeople are paid a commission of 7 percent of sales, plus expenses of $35 per day for days spent on the road away from home, plus $0.50 per mile. They deliver products in addition to making the sales, and each sales person is required to own a truck suitable for making deliveries. For the coming quarter, Olin estimates the following: Sales $1,300,000 Cost of goods sold 450,000 On average, a salesperson travels 6,000 miles per quarter and spends 38 days on the road. The fixed marketing and administrative expenses total $400,000 per quarter. Required: 1. Prepare an income statement for Olin Company for the next quarter. Olin Company Income Statement For the Coming Quarter Sales 1,300,00U Less: Cost of goods sold 450,000 Gross profit 850,000 Less: Variable marketing: Commissions 91.00U Mileage Road time 16,000 v Fixed marketing and administrative expenses 400,000 Operating income 296,400 2. Suppose that a large hardware chain, Mega Hardware, Inc., wants Olin Company to produce its new Super Tool line. This would require Olin Company to sell 80 percent of total output to the chain. The tools will be imprinted with the SuperTool brand, requiring Olin to purchase new equipment, use somewhat different materials, and reconfigure the production line. Olin's industrial engineers estimate that cost of goods sold for the Super Tool line would increase by 15 percent. No sales commission would be incurred, and Mega Hardware would link Olin to its EDI system. This would require an annual cost of $100,000 on the part of Olin. MegaHardware would pay shipping. As a result, the sales force would shrink by 80 percent. Prepare a revised income statement for Olin Company for the next quarter. Olin Company Revised Income Statement For the Coming Quarter Sales $ 1,300,000 Less: Cost of goods sold 450,000 X Gross profit 850,000 X Less: Variable marketing: Commissions Mileage Road time Fixed marketing and administrative expenses Operating income