Problem 2

Over the last few years, Jennifer Petersen sold crafts at the annual county fair.Using the sales and cost information from the most recent fair, Jennifer developed the following worksheet:

Jennifer Crafts

Pre-tax Profit County Fair

For fye 20x0

Sales

$16,000

Cost of crafts sold

8,800

Gross margin

7,200

Other costs and expenses:

Fair registration cost

1,200

Fair booth rental expense

750

Salary to support staff

400

Operating profit

$4,850

For the upcoming 20x1 fair, Ms. Petersen expects a 25% increase in total sales by selling more products.So, using the results from above, she forecasts operating profit from the 20x1 county fair as follows:

County Fair forecasted operating profit for 20x1

Operating profit 20x0

$4,850

Sales in 20x0

$16,000

Operating profit as a % of sales

30.3125%

Forecasted sales for 20x1

$20,000

Forecasted operating profit 20x1

$6,063

Required

Ms. Petersen has never had an Acct 203 course and isn't comfortable with her 20x1 profit forecast shown above.So, she's hired you to review her work.In reviewing Ms. Petersen's analysis, perform the following steps:

1. Using the Jennifer Crafts income statement for 20x0, construct Contribution Margin Income Statement.For that statement, assume the following: Cost of crafts sold and fair booth rental cost are variable costs; Fair registration cost and salaries to support staff are fixed costs.
2. Construct separate forecast of Jennifer Crafts operating profit for 20x1, using Ms. Petersen's sales forecast.Put your schedule in the "Contribution Margin" Income Statement format assuming the costs and expenses are variable and fixed as described in 1. above.
3. Does your forecasted 20x1 operating profit match Ms. Petersen's?If not, explain to Ms. Petersen why your forecasted operating profit differs from her forecasted amount.
4. Using the information from part 1., Ms. Petersen asks that you provide her with an estimate of the amount of sales she would have to generate in order to achieve an Operating Profit = $10,000.

My solution to first two are below, but I'm not sure I'm going in a right direction.

Please advise.

Thank you!

Sales revenues

$16,000.00

Variable cost

Cost of crafts sold

$8,800.00

fair booth rental cost

$750.00

$9,550.00

Contribution margin

$6,450.00

Fixed costs

Fair registration cost

$1,200.00

salaries to support staff

$400.00

$1,600.00

Net income

$4,850.00

Sales revenues

$20,000

Variable cost

Cost of crafts sold

$8,800.00

fair booth rental cost

$750.00

$9,550.00

Contribution margin

$10,450

Fixed costs

Fair registration cost

$1,200.00

salaries to support staff

$400.00

$1,600.00

Net income

$8,850