The results of operations for the Preston Manufacturing Company for the fourth quarter of 2017 were as follows:

	Sales		$550,000
	Less Variables cost of Sales		330,000
	Contribution Margin		$220,000
	Less Fixed Production	$120,000
Less fixed selling and admin expense		55,000	$175,000
			$45,000
	Less Taxes on Income		18,000
	Net Income		$27,000

Note: Preston Manufacturing uses the variable costing method. Thus, only variable production costs are included in inventory and costs of goods sold. Fixed production costs are changed to expense in the period incurred.

The companys balance sheet as of the end of the 4th quarter of 2017 was as follows:

Assets:
Cash		$160,000
Accounts receivable		220,000
Inventory		$385,000
Total Current Assets		$765,000
Property, plant and equipment		440,000
Less accumulated depreciation		110,000
Total Assets		$1,095,000
Liabilities and owners equity
Accounts payable		66,000
Common Stock		540,000
Retained Earnings		489,000
		1,095,000

Additional Information:

1. Sales and Variable costs of sales are expected to increase by 12% in the next quarter.

2. All sales are on credit with 60% collected in the quarter of sale and 40 % collected in the following quarter.

3. Variable costs of sales consists of 40% materials, 40% direct labor, and 20% variable overhead. Materials are purchased on credit. Fifty percent are paid for in the quarter of purchase, and hte remaining amount is paid for in the quarter after purchase. The inventory balance is not expected to change. Also, direct labor and variable overhead costs are paid in the quarter the expenses are incurred.

4. Fixed production costs (other than 9,000 of depreciation expense) are expected to increase by 3%. Fixed production costs requiring payment are paid in the quarter they are incurred.

5. Fixed selling and administrative costs (other than $7,000 of depreciation expenses) are expected to increase by 2%. Fixed selling and administrative costs requiring payment are paid in the quarter they are incurred.

6. The tax rate is expected to be 40%. All taxes are paid in the quarter they are incurred.

7. No purchases of property, plant, or equipment are expected in the first quarter of 2018.