Lembro, Inc., a manufacturer of auto accessories, currently produces two product lines of universal car mats at its Poughkeepsie Plant:(1) rubber all-weather car mats and (2) carpeted car mats. The all-weather floor mats are designed to resist mud, spills, and other forms of abuse. They are easily hosed off whenever soiled with mud or a spilled drink. Years ago, Lembro's management chose to produce its all-weather mats with high quality thermoplastic rubber (TPR) instead of real rubber or PVC. TPR was selected because it not only avoided the strong odors of pure rubber or PVC, but it also made TPC mats better able to hold their color, shape and withstand temperature variations. The decision paid off as Lembro's TPR mats gained wide acceptance with a strong reputation for high quality. After more than a decade of experience with TPR mats, Lembro made the decision two years ago to begin producing carpeted car mats. Management was confident that a similar quality strategy would be successful for carpeted car mats. Lembro's management understood that carpeted car mats involved a different market segment than the TPR mats. Carpeted mats would appeal to customers with a greater aesthetic preference. The carpet floor mats are made of a nylon weave attached (tufted) to a light rubber anti-slip, waterproof backing. The decision was made to produce carpeted mats with a tufted luxurious pile, a premium heel pad, and UV and stain resistance. The goal was to produce a universal luxury car mat that would be the only "value" priced car mat with luxury features-a mat that would be superior to the OEM mats and yet be reasonably priced. At the end of the second year, John Hope, Lembro's Vice President of Operations, met with the management team of the Poughkeepsie plant which included, Jim Scott, plant manager, Bill Johnson, marketing manager, and Kathy Campbell, plant controller. John had asked Kathy to first present and be prepared to analyze and discuss the variable costing income statement of the past year (the variable costing format was the preferred presentation format for internal management).
Required: 1. Complete the percent of sales column of following income statement (round percentages to two decimal places):
Lembro, Inc. Income Statement
For the Year Ended Poughkeepsie
Plant Percent of Sales Sales Revenue $ 30,000,000 %
Less Variable expenses: Direct materials 8,000,000
Direct labor 6,000,000 Maintenance 2,000,000
Power 800,000 Sales commissions 1,200,000
Contribution margin $ 12,000,000
Less Fixed expenses: Supervision 400,000
Advertising 1,000,000
Depreciation-machinery 1,000,000
Depreciation-plant 1,600,000
Inspecting products 2,000,000
Materials handling 1,500,000
Sales administration 800,000
Landscaping maintenance 700,000
Operating income $ 3,000,000
Taxes 1,200,000
Net operating income $ 1,800,000 %
2. Using information from the income statement, calculate the following (Round intermediate calculations and final answers to two decimal places. Use the rounded answer in subsequent requirements/ steps, if required): a. Variable cost ratio: b. Tax rate: c. Sales revenue needed to breakeven (in whole dollars):
3. Upon seeing the income statement, John Hope was disappointed. To satisfy the return expectations of shareholders and creditors, Lembro's products had to earn a net operating profit of at least 12 percent of sales revenues. The two car mat products appeared to be a drag on the other product lines of Lembro as they were earning below the required return on sales. How much must does sales revenue need to increase by in the coming year for the plant to earn at least an after-tax profit equal to 12 percent of sales? (Round intermediate calculations to two decimal places and sales to the nearest dollar) Required increase in sales revenues (in dollars): $