ACCT 346 Week 4 Homework (GRADED A) | 100% Correct Solutions

ACCT 346 Week 4 Homework 1. Active Equipment produces high-quality basketballs. If the fixed cost per basketball is $3 when the company produces 24,000 basketballs, what is the fixed cost per baske ...

ACCT 346 Week 4 Homework 1. Active Equipment produces high-quality basketballs. If the fixed cost per basketball is $3 when the company produces 24,000 basketballs, what is the fixed cost per basketball when it produces 36,000 basketballs? Assume both volumes are in the same relevant range. Identify the formula, then compute the new fixed cost per basketball when it produces 36,000 basketballs. New fixed cost / = per basketball / = 2. Pamela's Quilt Shoppe sells homemade Amish quilts. Pamela buys the quilts from local Amish artisans for $270 each, & her shop sells them for $470 each. She also pays a sales commission of 6% of sales revenue to her sales staff. Pamela leases her country-style shop for $1,400 per month & pays $2,100 per month in payroll costs in addition to the sales commissions. Pamela sold 100 quilts in February. Prepare Pamela's traditional income statement & contribution margin income statement for the month. Prepare the traditional income statement for the month. Pamela's Quilt Shoppe Income Statement For the Month Ended February 28 Less: Operating expenses Sales commissions $ 2,820 Payroll costs 2,100 Lease 1,400 Prepare the contribution margin income statement for the month. Pamela's Quilt Shoppe Contribution Margin Income Statement For the Month Ended February 28 This s tSudaylessourrecevweansudeownloaded by 100000801755870 from CourseH er$o.com on 4047-,0060-2002 2 12:08:26 GMT -05:00 https://www.coursehero.com/file/49135844/ACCT-346-Week-4-Homeworkdocx/ Less: Variable expenses Cost of goods sold $ 27,000 Sales commissions 2,820 Contribution margin 17,180 Less: Fixed expenses Payroll costs 2,100 Lease 1,400 Operating income $ 13,680 3. O'Sullivan's Products manufactures a single product. Cost, sales, & production information for the company & its single product is as follows: 1(Click the icon to view the data.) Read the requirements2. Requirement 1. Prepare an income statement for the upcoming year using variable costing. O'Sullivan's Products Contribution Margin Income Statement (Variable Costing) For the Year Ended December 31 Sales revenue $ 585,000 Less: Variable operating expenses 351,000 18,000 Contribution margin 216,000 Less: Fixed expenses 126,000 Fixed manufacturing overhead Fixed operating expenses Operating income $ 2,000 Requirement 2. Prepare an income statement for the upcoming year using absorption costing. O'Sullivan's Products Income Statement (Absorption Costing) For the Year Ended December 31 Sales revenue $ 585,000 Less: Cost of goods sold 477,000 Gross profit 108,000 Less: Operating expenses 106,000 Operating income $ 2,000 1: More Info • Selling price per unit is $65 • Variable manufacturing costs per unit manufactured (includes direct materials [DM], direct labor [DL], & variable MOH) $39 • Variable operating expenses per unit sold $2 • Fixed manufacturing overhead (MOH) in total for the year $126,000 • Fixed operating expenses in total for the year $88,000 • Units manufactured & sold for the year 9,000 units 2: Requirements 1. Prepare an income statement for the upcoming year using variable costing. 2. Prepare an income statement for the upcoming year using absorption costing. 4. Allen Manufacturing manufactures a single product. Cost, sales, & production information for the company & its single product is as follows: 3(Click the icon to view the data.) Read the requirements4. Requirement 1. Prepare an income statement for the upcoming year using variable costing. Allen Manufacturing Contribution Margin Income Statement (Variable Costing) For the Year Ended December 31 Sales revenue $ 726,000 Less: Variable operating expenses 429,000 49,500 Contribution margin 247,500 Less: Fixed expenses 152,000 Fixed manufacturing overhead Fixed operating expenses Operating income $ 47,500 Requirement 2. Prepare an income statement for the upcoming year using absorption costing. Allen Manufacturing Income Statement (Absorption Costing) For the Year Ended December 31 Sales revenue $ 726,000 Less: Gross profit 165,000 Less: Requirement 3. What causes the difference in income between the two methods? When inventory levels increase , operating income will be greater under absorption costing than it is under variable costing. This is because under variable costing , fixed MOH is expensed immediately as a period cost (operating expense). Under absorption costing , fixed MOH becomes part of the inventoriable cost of the product, which isn't expensed (as Cost of Goods Sold) until the inventory is sold, leaving a higher operating income due to less being expensed. 3: More Info • Sales price per unit $44 • Variable manufacturing costs per unit manufactured (DM, DL & variable MOH) $26 • Variable operating expenses per unit sold $3 • Fixed manufacturing overhead (MOH) in total for the year $152,000 • Fixed operating expenses in total for the year $48,000 • Units manufactured during the year 19,000 units • Units sold during the year 16,500 units 4: Requirements 1. Prepare an income statement for the upcoming year using variable costing. 2. Prepare an income statement for the upcoming year using absorption costing. 3. What causes the difference in income between the two methods? 5. Wentworth Industries manufactures & sells a single product. The controller has prepared the following income statement for the most recent year: 5(Click the icon to view the data.) The company produced 11,000 units & sold 7,500 units during the year ending December 31. Fixed manufacturing overhead (MOH) for the year was $231,000, while fixed operating expenses were $59,000. The company had no beginning inventory. Requirements 1. Will the company's operating income under variable costing be higher, lower, or the same as its operating income under absorption costing? Why? 2. Project the company's operating income under variable costing without preparing a variable costing income statement. 3. Prepare a variable costing income statement for the year. Requirement 1. Will the company's operating income under variable costing be higher, lower, or the same as its operating income under absorption costing? Why? Wentworth's operating income under variable costing will be This is because under absorption costing, some of lower than its operating income under absorption costing. the fixed MOH remains "trapped" on the balance sheet as part of the cost of inventory. all fixed MOH incurred during the period is expensed as a period cost. Under variable costing, Requirement 2. Project the company's operating income under variable costing without preparing a variable costing income statement. Begin by selecting the correct formula to reconcile the difference between the two income figures. Then enter the amounts to calculate the difference in operating income. x = Difference in operating income x = Now calculate Wentworth's projected operating income (loss) under variable costing. (Use a minus sign or parentheses for a loss.) Projected operating income (loss) under variable costing Requirement 3. Prepare a variable costing income statement for the year. (Use a minus sign or parentheses for a loss.) Wentworth Manufacturing Contribution Margin Income Statement (Variable Costing) For the Year Ended December 31 Sales revenue $ 555,000 This study source was downloaded by 100000801755870 from CourseHero.com on 04-06-2022 12:08:26 GMT -05:00 Less: https://www.coursehero.com/file/49135844/ACCT-346-Week-4-Homeworkdocx/ Variable cost of goods sold 285,000 Variable operating expenses 7,000 Contribution margin 263,000 Less: Fixed expenses 231,000 Fixed operating expenses Operating income (loss) $ (27,000) 5: Data Table Wentworth Industries Traditional Income Statement (Absorption Costing) For the Year Ended December 31 Operating income $ 46,500 6. The annual data that follows pertain to Rick's Radical Eyewear, a manufacturer of swimming goggles (the company had no beginning inventory): 6(Click the icon to view the data.) Requirements 1. Prepare both conventional (absorption costing) & contribution margin (variable costing) income statements for Rick's Radical Eyewear for the year. 2. Which statement shows the higher operating income? Why? 3. The company marketing vice president believes a new sales promotion that costs $155,000 would increase sales to 230,000 goggles. Should the company go ahead with the promotion? Give your reason. Requirement 1. Prepare both conventional (absorption costing) & contribution margin (variable costing) income statements for Rick's Radical Eyewear for the year. Begin with the conventional (absorption costing) income statement. Rick's Radical Eyewear Income Statement (Absorption Costing) For the Year Ended December 31 Sales revenue $ 9,890,000 Operating income $ 1,030,000 Now let's prepare the contribution margin (variable costing) income statement for Rick's Radical Eyewear for the year. Rick's Radical Eyewear Contribution Margin (Variable Costing) Income Statement For the Year Ended December 31 Contribution margin 3,870,000 Less: Fixed expenses Fixed manufacturing overhead 2,760,000 Fixed operating expenses 260,000 Operating income $ 850,000 Requirement 2. Which statement shows the higher operating income? Why? Absorption costing operating income is variable costing operating income. This is because absorption costing defers $ of fixed manufacturing overhead as an asset in ending inventory. In contrast, variable costing expense the fixed manufacturing overhead during the year. Variable costing expenses $ costs during the year, so variable costing operating income is $ than absorption costing income the year. Requirement 3. The company marketing vice president believes a new sales promotion that costs $155,000 would Use the contribution margin income statement format to evaluate the sales promotion. Increase in contribution margin $ 270,000 Increase in fixed expenses 155,000 Increase in operating income $ 115,000 Rick's Radical Eyewear should go ahead with the promotion because the increase in contribution margin exceeds the increase in fixed costs. 6: Data Table Sales price. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 46