EXHIBIT ONE Chef Marco’s Choice, Inc. Premium Grade Ovenware Product Income Stat

Question

EXHIBIT ONE
Chef Marco’s Choice, Inc.
Premium Grade Ovenware
Product Income Statement
For the years ended December 31, 2002-2006
2006 2005 2004 2003 2002
Sales   $ 78,599,808    $ 81,874,800    $ 86,184,000    $ 75,600,000    $ 67,500,000
Sales in units 5,239,987 5,458,320 5,745,600 5,040,000 4,5*00,000
Cost of Goods Sold        
Variable 29,081,929   31,112,424   31,026,240   27,972,000   24,975,000
Fixed 27,865,240 23,221,033    21,701,900 19,729,000 18,100,000
Gross Profit   $ 21,652,639    $ 27,541,343    $ 33,455,860    $ 27,899,000    $ 24,425,000
Attributable costs        
Marketing 5,894,986   6,140,610   5,774,328   5,140,800   4,758,750
Other (primarily fixed) 2,517,537 2,502,522 2,317,150 2,106,500 1,915,000
Product line profit        
before G&A allocation   $ 13,240,117    $ 18,898,211    $ 25,364,382    $ 20,651,700    $ 17,751,250
Return on Sales 16.84% 23.08% 29.43% 27.32% 26.30%

Prepare a budgeted income statement for Premium Grade Ovenware for 2007 if the engineers’ redesign efforts had worked as originally planned. Use these assumptions:

First quarter sales of 1,500,000 units will be achieved each quarter in 2007.

The selling price for 2007 will remain 10% below the price charged from 2002-2006, and there were no sales price increases during the 2002-2006 period.

Variable cost of goods sold averaged about $5.55 per unit of ovenware from 2002-2006.

Variable production costs will be reduced by 35% due to the new design.

The fixed cost of production in 2006 contained one-time, increased costs (about $4,000,000) for the design changes. For 2007, fixed costs are expected to be about 3.5% higher than 2005.

Marketing costs contain both fixed and variable elements, however, it is budgeted based on spending 7% of expected sales revenue.

Other fixed costs are expected to increase about 2.5% over 2006.

Would the product manager have met his profit target of 25% return on sales in 2007 for the product line with the redesign?

Explanation / Answer

Budgeted income statement for Premium Grade Ovenware for 2007.

Since, the budgeted profit target is 33.66%, the product manager have met his profit target of 25% return on sales in 2007 for the product line with the redesign.

Sl No Particulars Working Amount a) Expected Sales Revenue 1,500,000 ×4 Quarters×($15-10%) $81,000,000 b) Variable cost of goods sold 1,500,000 ×4 Quarters×($5.55-35%) $21,450,000 c) Fixed cost of production ($23,221,033+3.5%) $24,033,769 d) Gross Profit [a-(b+c)] $35,516,231 e) Attributable Costs i) Marketing Costs (7% of Expected Sales revenue) $5,670,000 ii) Other Fixed Costs $2,517,537+2.5%) $2,580,475 f) Product line profit before G&A allocation [d-e) $27,265,756 g) Return on sales [f/a×100] 33.66%

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