Fixed Overhead costs are 100% expensed under variable costing (c) Which has a higher net income? Absorption costing: Total of 40,000 higher under absorption costing (20 per unit * 2000 units) (d) What is the value of the 2,000 units in ending inventory under both methods? Absorption: 2000*110 = 220,000 and Variable 180,000
Jones Company reports the following information: Sales (5000 units) $400,000 Variable costs $200,000 Fixed Costs $120,000 Questions: (each one is only related to original information) If management increases the selling price by 10% with no change in variable or fixed costs, what is the change in net income? Original Net income: 400,000-200,000-120,000 = 80,000 Revised NI = 440,000*-200,000-120,000 = 120,000 400,000*1.1 = 440,000 40,000 increase in Net income If management reduces variable costs to 45% of sales, what is the change in net income? Original Net income: 400,000-200,000-120,000 = 80,000 Revised NI = 400,000-180,000-120,000 = 100,000 20,000 increase in net income If management increases fixed costs by $10,000 what is the change in break even units? 400,000/5000 = 80 Sales price per unit 200,000/5000 = 40 VC per unit Original Break even units: 120,000/40 = 3,000 units New Break even units: 130,000/40 = 3,250 units Break even increases by 250 units
Chapter 7 Special Order Gregg Company supplies schools with floor mattresses to use in physical education classes. Gregg has received a special order from a large school district to buy 600 mats at $45 each. Acceptance of the special order will not affect fixed costs but will result in $1,200 of shipping costs. For the first 6 months of 2013, the company reported the following operating results while operating at 80% capacity: Sales (100,000 units) $7,000,000 Cost of Goods sold – fixed 1,050,000 Cost of goods sold- variable 3,150,000 Gross profit 2,800,000 Operating expenses - fixed 600,000 Operating expenses – variable 1,400,000 Net income $ 800,000 HINT: determine the cost per unit for critical items for this analysis. Instructions (a) Prepare an incremental analysis for the special order. (b) Should Gregg Company accept the special order? What is the difference in net income? Sales price per unit: 7,000,000/100,000 = 70 COGS Variable Cost per unit: 3150,000/100,000= 31.50 COGS per unit & Operating Variable cost per unit: 1400000/100000 = 14 per unit (a) NI Reject Order Accept Order Inc/(Dec) Revenues $ -0- $27,000 $27,000 Cost of Goods Sold -0- 18,900 (18,900) Operating Expense -0- 9,600 (9,600 ) Net Income $ -0- $ (1,500 ) $ (1,500 ) Variable cost of goods sold for the special order = 600 × $31.50 = $18,900. Variable operating expenses for the special order = 600 × $14= $8,400 + $1,200= $9,600 (b) The incremental analysis shows Gregg Company should not accept the special order because incremental costs exceed incremental revenues.
Make or Buy Kuhn Bicycle Company has been manufacturing its own seats for its bicycles. The company is currently operating at 100% capacity, and variable manufacturing overhead is charged to production at the rate of 60% of direct labor cost. The direct materials and direct labor cost per unit to make the bicycle seats are $8.00 and $9.00, respectively. Normal production is 50,000 bicycles per year. A supplier offers to make the bicycle seats at a price of $21 each. If the bicycle company accepts this offer, all variable manufacturing costs will be eliminated, but the $30,000 of fixed manufacturing overhead currently being charged to the bicycle seats will have to be absorbed by other products.
- Spring '08
- Managerial Accounting, Net Income, Freberg