The Jonco Company is considering adding a new product to their line of kitchen gadgets. Jon has budgeted $70,000 for a marketing campaign. Jon anticipates a distribution cost of $5.00 on each unit. Jonco can obtain quantity discounts on the cost of the Dice-O-Matic as follows:

If he adds the product to his line, Jon projects an increase in his payroll expense of $42,000 and an increase in overhead of $18,000. Jonco?s previous experience with similar products and promotion programs is reflected by the following price/ demand data.

Jon has asked you to prepare a pro-forma contribution income statement showing his marginal operating income (EBIT) if he adds the dice-o-matic. Use the format of the following pro-forma statement:

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Qty 1500- 1500 1999 Cost $82.50 $81.00 2000- 2499 2500- 2999 $78.00 $75.75 3000- 3499 $72.50 > 3499 $70.00 Price 109.95 119.95 129.95 139.95 149.95 159.95 169.95 Demand 3250 3100 3000 2800 2650 2500 2000 Dice-O-Matic Pro-Forma Income Statement Sales Less Variable Costs: Cost of Goods Sold Distribution cost Total Variable Costs Contribution Margin Contribution Margin % Less Fixed Costs: xx% Advertising Payroll Overhead Total Fixed Costs Net Operating Income before taxes Operating Margin % XX% $XXX,XXX $XXX,XXX $XXX,XXX $XXX,XXX $XXX,XXX $XXX,XXX $XXX,XXX $XXX,XXX $XXX,XXX $XXX,XXX Qty 1500- 1500 1999 Cost $82.50 $81.00 2000- 2499 2500- 2999 $78.00 $75.75 3000- 3499 $72.50 > 3499 $70.00 Price 109.95 119.95 129.95 139.95 149.95 159.95 169.95 Demand 3250 3100 3000 2800 2650 2500 2000 Dice-O-Matic Pro-Forma Income Statement Sales Less Variable Costs: Cost of Goods Sold Distribution cost Total Variable Costs Contribution Margin Contribution Margin % Less Fixed Costs: xx% Advertising Payroll Overhead Total Fixed Costs Net Operating Income before taxes Operating Margin % XX% $XXX,XXX $XXX,XXX $XXX,XXX $XXX,XXX $XXX,XXX $XXX,XXX $XXX,XXX $XXX,XXX $XXX,XXX $XXX,XXX

Answer rating: 100% (QA)

Proforma statement of income is shown below at different demand levels of the product Dem... View the full answer