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Impact of outsourcing on pro-forma income statement

What would an executive summary cover in which you explain how outsourcing would impact the pro-forma income statement?

Schedule 17
Sunbird Boat Company
Pro-Forma Income Statement
For the Year Ended December 31, 2009
Sales revenue (Schedule 1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,000,000
Cost of goods sold (Schedule 16) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (500,000)
Gross margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 500,000
Selling and administrative expense (Schedule 7) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (406,000)
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 94,000
Interest expense (Schedule 15) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,500)
Net income before tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 92,500
Income taxes (40% average tax rate) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (37,000)
Net income after tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 55,500

Solution Preview

Krajewski and Ritzman (2002) define outsourcing as "allotting work to suppliers and distributors to provide needed services and materials and to perform those processes that the organization does not perform itself." Outsourced capacity includes increasing the production by giving or shifting the production to another country.

Already a significant share of manufactured goods is sourced in China; and similarly, there is a significant market for Outsourced software from India. Major automation suppliers like Honeywell, Invensys, Emerson, Rockwell and General Electric are transferring software development to India and manufacturing to China.

Software development in India has been booming in recent years. India now sells $6 bn worth of software annually to the US, with 60% annual growth projected over the next decade. Unique requirements and the services each ...

Solution Summary

This explains the impact of outsourcing on the pro-forma income statement

$2.19