Income Statement Jean and Tom Perritz own and manage Happy Home Helpers, Inc. (H

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:

Next year, HHH expects to purchase $25,600 of direct materials. Projected beginning and ending inventories for direct materials are as follows:

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.

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?

a. Sales would rise by $50,000

b. Operating income would be $142,500

c. Fixed costs per cleaning would decrease

Direct materials ? Direct labor $472,500 Variable overhead 15,000 Fixed overhead 18,000

Explanation / Answer

If price is increased by $ 50, net opertaing income will rise by $ 75,000 and will become $ 1,42,500.

Revenue        6,75,000 COGS- Material Cost            27,000 Direct Labour        4,72,500 Variable overhead            15,000 Selling Exp            22,000 Admin Exp            53,000 Fixed Overhead            18,000 Total Cost        6,07,500 Profit            67,500

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