Ch 10

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Unformatted text preview: ....... 1,612,500 Contribution margin ................................................. Less: Fixed expenses ............................................... Operating income (loss) ..................................... 2. $ 19,350,000 12,900,000 $ 6,450,000 6,600,000 $ (150,000) Madengrad Company Variable-Costing Income Statement Budget Based on Technological Change Sales (21,500 × $900) ................................................ Variable cost of goods sold: Direct materials (21,500 × $180) ......................... Direct labor (21,500 × $216) ................................ Overhead (21,500 × $78.75) ................................. Variable selling (21,500 × $75) ................................. Contribution margin ................................................. Less: Fixed expenses ............................................... Operating income ................................................ 340 $ 19,350,000 $3,870,000 4,644,000 1,693,125 10,207,125 1,612,500 $ 7,530,375 7,260,000 $ 270,375 10–30 A. B. C. D. E. Cost; total manufacturing cost Investment; ROI Revenue; total sales revenue Profit; operating income Investment; ROI 10–31 1. The profit change can be explained by the following analysis: Increase in sales revenues $20,000 Increase in variable manufacturing costs ($3.90 × 2,000) (7,800) Increase in variable selling costs ($0.50 × 2,000) (1,000) Increase in fixed overhead: Year 1—2,000 units × $2.90 (5,800) Year 2—1,000 units × $3.00 (3,000) Year 3 underapplied fixed OH (3,000) Net change in income $ (600) The problem is the increased fixed overhead. We expect variable costs to increase, but the increase in fixed overhead expenses is notable, because the actual fixed overhead incurred for Year 3 is the same as that of Year 2. This increase in fixed overhead recognized on the income statement is explained by the fact that in Year 3, the division sold units from prior years with fixed overhead attached to them, and by the fact that no fixed overhead was inventoried (as was the case in...
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This document was uploaded on 11/26/2013.

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