The annual planning process at Smarmey Farms, Inc., had been arduous but produced a number of important marketing initiatives for the next year. Most notably, top management has decided to restructure its product-marketing team into two separate groups: 1) Jams and Jellies Products and 2) Honey and Bees Wax Products. Ellen DeGenix was assigned responsibility for the Jams and Jellies Products (J&J) group, which would market the companys jams and jellies for home use by individuals. Her marketing plan, which included a sales forecast for next year of $20 million (this is really good stuff), as the result of a detailed market analysis and negotiations with individuals both inside and outside the company. Discussions with the sales director indicated that 35 % of the company sales force would be dedicated to selling products of the J & J group. Sales representatives would receive 10% commission

MK 480 Accounting homework problems on sales of jams and jellies. Under the new organizational structure, the J & J group would be charged with 40 % of the budgeted sales force expenditure. The sales directors budget for salaries and fringe benefits of the sales force and non-commission selling costs for both the Honey and Jams and Jellies groups was $6.0 million. The advertising and promotion budget contained three elements: consumer magazine advertising, cooperative newspaper advertising with the Smarmey Farms, Inc., pop-up merchandisers and sales promotion materials including product brochures, promotional recipe books, catalogs, and point-of-purchase displays. Consumer magazine ads and sales promotion materials were to be developed by the companys advertising and public relations agency. Production and media placement costs were budgeted at $500,000. Cooperative advertising copy for both newspaper and radio use had budgeted production costs of $50,000. Swarmey Farms, Inc. cooperative advertising allowance policy stated that the company would allocate 3 percent of company sales to pop-up merchandisers to promote its products. Merchandisers always used their complete cooperative advertising allowances. Meetings with manufacturing and operations personnel indicated that the direct costs of material and labor and direct factory overhead to produce the Jams and Jellies product lines represented 50% of sales. The accounting department would assign $400,000 in indirect manufacturing overhead (for example depreciation, maintenance) to the product line and $150,000 for administrative overhead (clerical, telephone, office space, and so forth). Freight for the product line would average 7% of sales. DeGenixs staff consisted of two product managers, Jimmy and Steven, and a marketing assistant, Alex. Salaries and fringe benefits for Ms. Degenix and her staff were $300,000 per year. a. Prepare a pro forma income statement for the J & J group of Smarmey Farms given the information provided. b. Prepare a pro forma income statement for the J & J group given annual sales of $15 million.