Question

Income statement. a. Company A and Company B have taken different approaches to selling glassware. Company A has decided to make glass stemware that sells for a premium at $16.98 per glass. Company B has decided to make a less expensive glassware (without stems) that sells for $11.98 per glass. Last year Company A sold 847,000 stemmed glasses; Company B sold 1,388,000 glasses. Given the following additional information about each firm, construct an income statement for each company, and see which company had the higher gross margin (revenue minus cost of goods sold), higher EBIT, higher taxable income, higher net income, and higher OCF. b. Company B is thinking of upgrading the quality of its glassware. Doing so will cause its cost per unit to rise by 18%, but it believes it can raise its price by 25%. Its sales volume will fall by 15% (85% of its current volume). However, letting the market know that it has better-quality glassware will require a doubling of the current selling, general, and administrative expenses. Using a spreadsheet, redo the income statement for this scenario. Does it improve net income and operating cash flow for Company B? How does the company now compare to Company A? Required: In the spreadsheet, use a separate cell for each piece of information, and then construct the income statement by using a formula or cell reference for each individual line of the statement.

Answer 1

Income statment is prepared below.. part asBL Parta part b company A company B company 'B stemware) (cithout stems) (upgrading I 6) ($) quality) (8) 14382060 16,628,240 17,673,404 691,99 90 9285,720 9,308,622 Revenue cost of goods sold Gross margin or profit 7,4620707342520 8,364,782 1354218 584 431 1354.218 1168862 fixed cost 1,245,788 selling, general and 785028 adminishative expenses Depreciation expenses 14893774 4137890 4 37,890 EBIT interest expenses 3,94 1870 4265,981 470 3812 501030 698540 698540. Taxable income 3,440840 3567441 4005272 Taxes (37.51) 1290315 1337790 1501977 Met Income 2150525 2229657.2503295 operating cash flow 3639899 33 67,541/3641185 Coco @ company B has Higher ERIT, taxable income and net income, but it has lower gross margin and OCF. (6 company B has Higher EBIT, taxable income net in come, gross margin upgrading the glass ware after. and ocF quality.