Income statement, rate increases

The “Metropolitan News” a daily newspaper, serves a community of
100,000. The paper has a circulation of 40,000, with 32,000 copies
delivered directly to subscribers. The rate schedule for the paper is

Single issue price: $0.15 daily; $0.30 Sunday

Weekly subscription: $1.00 lincludes daily and Sunday

The paper has experienced profitable operations as can be seen from the
income statement for the year ended September 30, 20X3 (in thousands):

Revenue:



Newspaper sales

$2,200

Advertising sales

1,800 $4,000

Costs and expenses:



Personnel costs:



Commissions:



Carriers $ 292



Sales 73



Advertising 48



Salaries:



Administration 250



Advertising 100



Equipment operators 500



Newsroom 400



Employee benefits 195 $1,858

Newsprint

834

Other supplies

417

Repairs

25

Depreciation

180

Property taxes

120

Building rental

80

Automobile leases

10

Other

90

Total costs and expenses

3,614

Income before income taxes

$386

Income taxes

154

Net income

$ 232



The Sunday edition usually has twice as many pages as the daily
editions. Direct edition variable costs for 20X3-X4 are shown here:

COST Per Issue

Daily Sunday

Paper $0.050 $0.100

Other Supplies 0.025 0.050

Carrier and Sales Commissions 0.025 0.025

$0.100 $0.175



The company has scheduled the following changes in operations for the
next year and anticipates some increased costs:



1. The building lease expired on September 30, 20X4, and has been
renewed with a change in the rental fee provisions from a straight fee
to a fixed fee of $60,000 plus 1 percent of newspaper sales.

The advertising department will eliminate the payment of a 4 percent
advertising commission on contracts sold on a contract basis in the
past. The salaries of the four employees who solicited advertising will
be raised from $7,500 each to $14,000 each.

Automobiles will no longer be leased. Employees whose jobs require
automobiles will use their own and be reimbursed at $0.15 per mile. The
leased cars were driven 80,000 miles in 20X3-X4, and it is estimated
that the employees will drive some 84,000 miles next year on company
business.

Cost Increases Estimated for Next Year:

Newsprint, $0.01 per daily issue and $0.02 for the Sunday paper

Salaries:

Equipment operators, 8 percent

Other employees, 6 percent

Employee benefits (from 15 percent of personnel costs excluding carrier
and sales commissions to 20 percent), 5 percent.

Circulation increases of 5 percent in Newsstands and home delivery are
anticipated.

Advertising revenue is estimated at $1,890,000 with $1,260,000 from
employee-solicited contracts.