Business
Engineering
Math
Science
Social Science
Olin Company manufactures and distributes carpentry tools. Production of the tools is in the mature portion of the product life cycle. Olin has a sales force of 20. Salespeople are paid a commission of 7 percent of sales, plus expenses of $35 per day for days spent on the road away from home, plus $0.50 per mile. They deliver products in addition to making the sales, and each salesperson is required to own a truck suitable for making deliveries. For the coming quarter, Olin estimates the following: On average, a salesperson travels 6,000 miles per quarter and spends 38 days on the road. The fixed marketing and administrative expenses total $400,000 per quarter. Required: 1. Prepare an income statement for Olin Company for the next quarter. 2. Suppose that a large hardware chain, MegaHardware, Inc., wants Olin Company to produce its new SuperTool line. This would require Olin Company to sell 80 percent of total output to the chain. The tools will be imprinted with the SuperTool brand, requiring Olin to purchase new equipment, use somewhat different materials, and reconfigure the production line. Olin’s industrial engineers estimate that cost of goods sold for the SuperTool line would increase by 15 percent. No sales commission would be incurred, and MegaHardware would link Olin to its EDI system. This would require an annual cost of $100,000 on the part of Olin. MegaHardware would pay shipping. As a result, the sales force would shrink by 80 percent. Should Olin accept MegaHardware’s offer? Support your answer with appropriate calculations.
Cornerstones of Cost Management (C...
Solutions
Cornerstones of Cost Management (C...
Olin Company manufactures and distributes carpentry tools. Production of the tools is in the mature portion of the product life cycle. Olin has a sales force of 20. Salespeople are paid a commission of 7 percent of sales, plus expenses of $35 per day for days spent on the road away from home, plus $0.50 per mile. They deliver products in addition to making the sales, and each salesperson is required to own a truck suitable for making deliveries.
For the coming quarter, Olin estimates the following:
On average, a salesperson travels 6,000 miles per quarter and spends 38 days on the road. The fixed marketing and administrative expenses total $400,000 per quarter.
Required:
- 1. Prepare an income statement for Olin Company for the next quarter.
- 2. Suppose that a large hardware chain, MegaHardware, Inc., wants Olin Company to produce its new SuperTool line. This would require Olin Company to sell 80 percent of total output to the chain. The tools will be imprinted with the SuperTool brand, requiring Olin to purchase new equipment, use somewhat different materials, and reconfigure the production line. Olin’s industrial engineers estimate that cost of goods sold for the SuperTool line would increase by 15 percent. No sales commission would be incurred, and MegaHardware would link Olin to its EDI system. This would require an annual cost of $100,000 on the part of Olin. MegaHardware would pay shipping. As a result, the sales force would shrink by 80 percent. Should Olin accept MegaHardware’s offer? Support your answer with appropriate calculations.
1.
Prepare the income statement for Company O for the next quarter.
Explanation of Solution
Income statement: The financial statement which reports revenues and expenses from business operations and the result of those operations as net income or net loss for a particular time period is referred to as income statement.
Prepare the income statement for Company O for the next quarter:
| Company O | |
| Income statement | |
| For the Next Quarter | |
| Particulars | Amount ($) |
| Sales | $1,300,000 |
| Less: Cost of goods sold | $450,000 |
| Gross profit | $850,000 |
| Less: Variable marketing expenses | |
| Commission | ($91,000) |
| Mileage | ($60,000) |
| Road time | ($26,000) |
| Other marketing and administrative expenses | ($400,000) |
| Operating income | $272,400 |
Table (1)
Notes to the above table:
- Variable expenses on Commission is $91,000
2.
Identify whether the offer from Hardware M will be acceptable or not. Support the decision with calculations.
Chapter 18 Solutions
Additional Business Textbook Solutions
Management, Loose-Leaf Version
Fundamentals of Financial Management (MindTap Course List)
Essentials of Business Communication (MindTap Course List)
College Accounting, Chapters 1-27 (New in Accounting from Heintz and Parry)
Contemporary Marketing
College Accounting (Book Only): A Career Approach
Corporate Financial Accounting
Accounting (Text Only)
Financial & Managerial Accounting
Principles of Microeconomics (MindTap Course List)
Financial & Managerial Accounting
Purchasing and Supply Chain Management
STATISTICS F/BUSINESS+ECONOMICS-TEXT
Financial Accounting
Fundamentals of Financial Management (MindTap Course List)
Principles of Macroeconomics (MindTap Course List)
Practical Management Science
Macroeconomics
Pkg Acc Infor Systems MS VISIO CD
Managerial Accounting: The Cornerstone of Business Decision-Making
Corporate Financial Accounting
Financial Accounting
Economics (MindTap Course List)
PAYROLL ACCT.,2019 ED.(LL)-TEXT
Principles of Macroeconomics (MindTap Course List)
ECON: MICRO4 (New, Engaging Titles from 4LTR Press)
MKTG 12:STUDENT ED.-TEXT
Fundamentals of Financial Management, Concise Edition (with Thomson ONE - Business School Edition, 1 term (6 months) Printed Access Card) (MindTap Course List)
Fundamentals of Financial Management, Concise Edition (MindTap Course List)
Accounting Information Systems
Financial And Managerial Accounting
Accounting Information Systems
Principles of Economics (MindTap Course List)
Brief Principles of Macroeconomics (MindTap Course List)
Intermediate Accounting: Reporting And Analysis
Foundations of Business (MindTap Course List)
Exploring Economics
College Accounting (Book Only): A Career Approach
Economics For Today
Statistics for Business & Economics, Revised (MindTap Course List)
College Accounting, Chapters 1-27
Survey of Accounting (Accounting I)
Essentials of Economics (MindTap Course List)
Managerial Accounting
Cornerstones of Financial Accounting
Microeconomics: Private and Public Choice (MindTap Course List)
MACROECONOMICS FOR TODAY
Microeconomics
Understanding Management (MindTap Course List)
Economics: Private and Public Choice (MindTap Course List)
Micro Economics For Today
Macroeconomics: Private and Public Choice (MindTap Course List)
