RainRuler Stains produces a variety of exterior wood stains that have excellent coverage and longevity. In 2011, the company produced and sold 310,000 gallons of stain. Income for the year was as follows:
In the past, the company has marketed its product only to independent hardware stores in Oregon, Washington, and Idaho. Recently, however, Reggie Sherman, VP of marketing, has negotiated deals with several large construction companies. He estimates that these deals will increase annual sales by 70,000 gallons but at a reduced price of $12 per gallon. (The price in 2011 to hardware stores was $15 per gallon, and this will not be affected by the new deals.)
Required:
Assume the role of Jennifer and prepare an income statement for 2011 using variable costing. Then use information on that statement as a basis for estimating the annual impact on profit of sales to construction companies.