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This assignment involves both analysis and writing.Given a set of financial assumptions, you are to calculate: X 1. The impact on the income statement of
This assignment involves both analysis and writing.Given a set of financial assumptions, you are to calculate: X 1. The impact on the income statement of advertising more heavily 2. The impact of selling higher margin merchandise. You need to: (1) Prepare two (2) multi-step income statements illustrating the effect of each set of assumptions and (2) Prepare a memo to Bill Hildebrand, the controller explaining the results of your analysis. This memo will be graded for writing. It need not be long but it should be clear and meaningful. Case: Party-Time T-Shirts sells T-shirts for parties at the local college. The company completed the first year of operations, and the shareholders are generally pleased with operating results as shown by the following income statement: PARTY-TIME T-SHIRTS Income Statement Year Ended December 31, 2017 Net Sales Revenue $350,000 Cost of Goods Sold 210,000 Gross Profit 140,000 Operating Expenses Selling Expense 40,000 Administrative Expense 25,000 Net Income S 75,000 Bill Hildebrand, the controller, is considering how to expand the business. He proposes two ways to increase profits to $100,000 during 2018. 1. Hildebrand believes he should advertise more heavily. He believes additional advertising costing $20,000 will increase net sales by 30% and leave administrative expense unchanged, Assume that Cost of Goods Sold will remain at the same percentage of net sales as in 2017, so if net sales increase in 2018, Cost of Goods Sold will increase proportionately. In summary, sales will increase by 30% , cost of goods sold will increase by 30% , and advertising will increase by $20,000. Cluises iTom tampa... Pets Benient From G 7 Natural Ways to E... a Am at the same percentage of net sales as in 2017, so if net sales increase in 2018, Cost of Goods Sold will increase proportionately. In summary, sales will increase by 30 increase by $20,000. % , cost of goods sold will increase by 30 % , and advertising will 2. Hildebrand proposes selling higher-margin merchandise, such as party dresses, in addition to the existing product line. An importer can supply a minimum of 1,000 dresses for $40 each (this is cost of goods sold); Party-Time can mark these dresses up 100% and sell them for $80 (this is the selling price). Hildebrand realizes he will have to advertise the new merchandise, and this advertising will cost $5,000. Party-Time can expect to sell only 80% of these dresses during the coming year. In summary, sales increase by 1.000 x ($40 x 2) selling price; cost of goods sold increases by 1,000 x $40 cost; and advertising increases by $5,000. Help Hildebrand determine which plan to pursue. Prepare a multi-step income statement for 2018 to show the expected net income under each plan. Prepare a memo outlining the options and the results of each. Upload your solution to Canvas. This project will be graded for the quality of the analysis and writing. Be sure your analysis is clear and understandable. Writing will be graded for content, clarity, and grammar
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