SOLUTION 7-16

SOLUTION 7-16 - SOLUTION 7-16 "Can someone explain to...

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SOLUTION 7-16 "Can someone explain to me what's wrong with these statements?" asked Cheri Reynolds, president of Milex Corporation. "They just don't make sense. We sold the same number of units this year as we did last year, yet our profits have tripled! Who messed up the calculations?" The absorption costing income statements to which Ms. Reynolds was referring are shown below: Year 1 Year 2 Sales (40,000 units each year) $ 1,250,000 $ 1,250,000 Cost of goods sold 840,000 720,000 Gross margin 410,000 530,000 Selling and administrative expenses 350,000 350,000 Net operating income $ 60,000 $ 180,000 In the first year, the company produced and sold 40,000 units; in the second year, the company again sold 40,000 units, but it increased production to 50,000 units, as shown below: Year 1 Year 2 Production in units 40,000 50,000 Sales in units 40,000 40,000 Variable manufacturing cost per unit produced $ 6 $ 6 Variable selling and administrative expense per unit sold $ 2 $ 2 Fixed manufacturing overhead costs (total)
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This note was uploaded on 05/08/2008 for the course BUAD 250B taught by Professor Jackson during the Spring '07 term at USC.

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SOLUTION 7-16 - SOLUTION 7-16 "Can someone explain to...

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