In: Accounting
Manufacturing Expenses
Variable $3,250,000
Fixed overhead 640,000 3,890,000
Gross Margin $4,610,000
Selling and administrative expenses
Commissions $580,000
Fixed marketing expenses 300,000
Fixed admin expenses 450,000 1,330,000
Net Operating Income $3,280,000
Fixed Interest expenses 230,000
Income before Taxes $3,050,000
Income Taxes (21%) 640,500
Net Income $2,409,500
Your company is considering out-sourcing the sales and marketing to an agency specializing in these types of sales. The outsourcing would remove the commissions, reduce the marketing by $270,000, and reduce the fixed administrative expenses by $35,000. The out-sourcing firm, Jangler Marketing, will charge a fee of 14% of sales. Jangler requires a 3-year contract. Jangler believes that it can increase sales by 10% for 2019 and 13% each year after (2020 and 2021). The company believes that with its current sales and marketing staff, sales will increase by 8% for 2019 and 9% in each year after (2020 and 2021).
1.Prepare contribution format projected income statements for 2019, 2020 & 202a assuming the company hires Jangler Marketing.
2.Prepare contribution format projected income statements assuming the outsourcing is rejected.