Sarah's Kreations just completed its best year, generating income of $24,000 from selling decadent wedding cakes...

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Sarah's Kreations just completed its best year, generating income of $24,000 from selling decadent wedding cakes and desserts. For a business that is only two years old and run from Sarah's own kitchen, this is quite an accomplishment. She has been asked to provide a special-event cake for one event per month at the local convention center, but at a reduced price of $440. While this is mostly fantastic news, Sarah realizes that she is already working at maximum capacity. If she commits to these events, she will need to either find additional capacity or reduce her regular wedding cake sales. The following income statement shows Sarah's results from last year. Sales COGS Gross margin Operating expenses Operating income $190,000 (a) 118,000 72.000 48,000 $24,000 Sarah's average selling price is $1,000 per cake; fixed-MOH costs are $66,700 and are included in COGS. All other product costs vary based on volume. Average variable operating expenses are $107 per cake; remaining operating expenses are fixed. After thinking about it further, she realizes she'll avoid the variable operating expenses on the special-event cakes. To keep her existing sales volume and take on the new convention center events, Sarah would need to hire additional employees who would "invade" her home while she and her family sleep. Hiring dependable night-shift workers would increase her variable product costs per unit by 10%. If she maintains her existing sales and takes on the new events under these circumstances, how much total operating income will she show for next year? Total operating income $ Sarah's Kreations just completed its best year, generating income of $24,000 from selling decadent wedding cakes and desserts. For a business that is only two years old and run from Sarah's own kitchen, this is quite an accomplishment. She has been asked to provide a special-event cake for one event per month at the local convention center, but at a reduced price of $440. While this is mostly fantastic news, Sarah realizes that she is already working at maximum capacity. If she commits to these events, she will need to either find additional capacity or reduce her regular wedding cake sales. The following income statement shows Sarah's results from last year. Sales COGS Gross margin Operating expenses Operating income $190,000 (a) 118,000 72.000 48,000 $24,000 Sarah's average selling price is $1,000 per cake; fixed-MOH costs are $66,700 and are included in COGS. All other product costs vary based on volume. Average variable operating expenses are $107 per cake; remaining operating expenses are fixed. After thinking about it further, she realizes she'll avoid the variable operating expenses on the special-event cakes. To keep her existing sales volume and take on the new convention center events, Sarah would need to hire additional employees who would "invade" her home while she and her family sleep. Hiring dependable night-shift workers would increase her variable product costs per unit by 10%. If she maintains her existing sales and takes on the new events under these circumstances, how much total operating income will she show for next year? Total operating income $

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To calculate the total operating income for next year we need to consider the additional costs and r... View the full answer