The CEO of Orange, Inc. is evaluating a proposal for outsourcing all their internal part production and focusing internal operations only on assembly of the parts. The cost to convert to outsourcing ,forecast at $350,000, is not depreciable and will be expensed (paid for) in year 1, and should be listed separately from S.G.&A.
The proposal is forecasted to reduce the unit cost of the parts by 15% in year 1 and then the cost will be constant at the reduced level in the future. The assembly cost per unit will not change; just the quantity. The additional purchasing effort is expected to increase S.G.& A. expense by 8% in year 1 and hold constant at the the new level in the future.
This sales price of their single product will be reduced by 5% in year 1 and then held constant at this level in the future. The price decrease is forecasted to increase sales quantities as shown below. Without the proposal the sales price, costs to produce, S.G.& A., and sales are all expected to stay the same as present.
Construct the Income statement part of a financial analysis that could be used to evalaute the proposal. The time horizon for this proposal is 5 years. Show all subtotals in the income statement.
	Year	1	2	3	4	5
	Sales Quantity- with proposal	126,000	132,300	138,915	145,861	153,154
	Sales Quantity - without proposal	120,000	120,000	120,000	120,000	120,000
		Present	one-time change		Proposed
	Sales Price per unit	$18.99	5%	less
	Machined parts cost per unit	$4.40	15%	less
	Assembly cost per unit	$5.60	0%	no change
	S.G. & A per year	$150,000	8%	increase
	Cost of proposal	$350,000	Separate from S.G. & A.
	Proposal life span	5	years
	Income tax	14%	annually
	MARR	10%	annually