Jean and Tom Perritz own and manage Happy Home Helpers Inc. (HHH), a housecleaning service. Each cleaning (cleaning one house one time) takes a team of threehouse cleaners about 1.5 hours. On average, HHH completes about 15,000 cleaningsper year. The following total costs are associated with the total cleanings:
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Direct Materials
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$ 27,000
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Direct Labor
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472,500
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Variable Overhead
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15,000
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Fixed overhead
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18,000
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Next year, HHH expects to purchase $25,600 of direct materials. Projected beginningand ending inventories for direct materials are as follows:
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Direct Materials Inventory
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Beginning
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$4,000
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Ending
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2,600
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There is no work-in-process inventory; in other words, a cleaning is started and completed on the same day.
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? Explain which line items in the income statement would be affected and how.