Pietro Frozen Foods, Inc., produces frozen pizzas. For next year, Pietro predicts that 52,400 units will be produced, with the following total costs: Direct materials? Direct labor 53,000 Variable overhead 17,000 Fixed overhead 250,000 Next year, Pietro expects to purchase $115,000 of direct materials. Projected beginning and ending inventories for direct materials and work in process are as follows: Direct materials Inventory Work-in-Process Inventory Beginning $4,000 $12,700 Ending $3,900 $14,700 Next year, Pietro expects to produce 52,400 units and sell 51,700 units at a price of $16.00 each. The beginning inventory of finished goods is $43,500, and the ending inventory of finished goods is expected to be $35,000. Total selling expense is projected at $27,000, and total administrative expense is projected at $126,500.

1. Prepare an income statement in good form. Round the percent to four decimal places before converting to a percentage. For example, .88349 would be rounded to .8835 and entered as 88.35.

2. What if the cost of goods sold percentage for the past few years was 49.38 percent? Management's reaction might be: