Income Statement Jean and Tom Perritz own and manage Happy Home Helpers, Inc. (H
ID: 2329951 • Letter: I
Question
Income Statement Jean and Tom Perritz own and manage Happy Home Helpers, Inc. (HHH), a house-cleaning service. Each cleaning (cleaning one house one time) takes a team of three house cleaners about 1.5 hours. On average, HHH completes about 15,000 cleanings per year. The following total costs are associated with the total cleanings: Direct materials ? Direct labor $472,500 Variable overhead 15,000 Fixed overhead 18,000 Next year, HHH expects to purchase $25,600 of direct materials. Projected beginning and ending inventories for direct materials are as follows: Direct Materials Inventory Beginning $4,000 Ending 2,600 There is no work-in-process inventory and no finished goods inventory; in other words, a cleaning is started and completed on the same day. HHH expects to sell 15,000 cleanings at a price of $45 each next year. Total selling expense is projected at $22,000, and total administrative expense is projected at $53,000. Required: 1. Prepare an income statement in good form. Happy Home Helpers, Inc. Income Statement For the Coming Year $ $ Less operating expenses: $ $ 2. What if Jean and Tom increased the price to $50 per cleaning and no other information was affected? Which of the following statements would be true? Operating income would be $142,500
Explanation / Answer
Answer
Direct materials:
Beginning Inventory
$ 4,000.00
Add: Purchases
$ 25,600.00
Material Available
$ 29,600.00
Less: Ending Inventory
$ 2,600.00
Direct materials used in Production
$ 27,000.00
Direct Labor
$ 472,500.00
Cleaning Overhead
$ 33,000.00
Total services production costs added
$ 532,500.00
Add: Beginning Work In Process
$ -
Less: Ending Work In Process
$ -
Cost of service produced
$ 532,500.00
Income Statement
Sales Revenue [15,000 x $ 45]
$ 675,000.00
Cost of service produced
$ 532,500.00
Gross Profits
$ 142,500.00
Less: Operating Expenses:
Selling Expenses
$ 22,000.00
Administrative Expenses
$ 53,000.00
Total Operating Expenses
$ 75,000.00
Net Operating Income or Net Income
$ 67,500.00
Income Statement
Sales Revenue [15,000 x $ 50]
$ 750,000.00
Cost of service produced
$ 532,500.00
Gross Profits
$ 217,500.00
Less: Operating Expenses:
Selling Expenses
$ 22,000.00
Administrative Expenses
$ 53,000.00
Total Operating Expenses
$ 75,000.00
Net Operating Income or Net Income
$ 142,500.00
Net Income when Sale price was $ 45
$ 67,500.00
Increase in Net Income
$ 75,000.00
----Hence, Net Operating Income would be $ 142,500 [Increased by $ 75,000 from earlier Net Income]
Direct materials:
Beginning Inventory
$ 4,000.00
Add: Purchases
$ 25,600.00
Material Available
$ 29,600.00
Less: Ending Inventory
$ 2,600.00
Direct materials used in Production
$ 27,000.00
Direct Labor
$ 472,500.00
Cleaning Overhead
$ 33,000.00
Total services production costs added
$ 532,500.00
Add: Beginning Work In Process
$ -
Less: Ending Work In Process
$ -
Cost of service produced
$ 532,500.00