During Heaton Company’s first two years of operations, it reported absorption costing net operating income as follows:   Year 1   Year 2 Sales (@ $25 per unit) $ 1,000,000   $ 1,250,000 Cost of goods sold (@ $18 per unit)   720,000     900,000 Gross margin   280,000     350,000 Selling and administrative expenses*   210,000     230,000 Net operating income $ 70,000   $ 120,000   *$2 per unit variable; $130,000 fixed each year. The company’s $18 unit product cost is computed as follows: Direct materials $ 4 Direct labor   7 Variable manufacturing overhead   1 Fixed manufacturing overhead ($270,000 ÷ 45,000 units)   6 Absorption costing unit product cost $ 18 Forty percent of fixed manufacturing overhead consists of wages and salaries; the remainder consists of depreciation charges on production equipment and buildings. Production and cost data for the first two years of operations are:   Year 1 Year 2 Units produced 45,000 45,000 Units sold 40,000 50,000 Compute: 1. Using variable costing, what is the unit product cost for both years? 2. What is the variable costing net operating income in Year 1 and in Year 2? 3. Compute the absorption costing and the variable costing net operating income figures for each year.

Buckley Company operates three segments. Income statements for the segments imply that profitability could be improved if Segment A were eliminated. BUCKLEY COMPANY Income Statements for Year 2 Segment A   B   C Sales $ 330,000     $ 480,000     $ 500,000   Cost of goods sold   (242,000 )     (184,000 )     (190,000 ) Sales commissions   (30,000 )     (44,000 )     (44,000 ) Contribution margin   58,000       252,000       266,000   General fixed operating expenses (allocation of president’s salary)   (92,000 )     (92,000 )     (92,000 ) Advertising expense (specific to individual divisions)   (6,000 )     (20,000 )     0   Net income (loss) $ (40,000 )   $ 140,000     $ 174,000     Required Prepare a schedule of relevant sales and costs for Segment A. Prepare comparative income statements for the company as a whole under two alternatives: (1) the retention of Segment A and (2) the elimination of Segment A. Options for required A table are: Advertising…

The contribution format income statement for Huerra Company for last year is given below. Total $1,006,000 603,600 Unit $ 50.30 30.18 402,400 20.12 322,400 16.12 Sales Variable expenses Contribution margin Fixed expenses Net operating income Income taxes @ 40% Net income 80,000 32,000 $ 48,000 4.00 1.60 $2.40 The company had average operating assets of $502,000 during the year. Required: 1. Compute the company's margin, turnover, and return on investment (ROI) for the period. For each of the following questions, indicate whether the margin and turnover will increase, decrease, or remain unchanged as a result of the events described, and then compute the new ROI figure. Consider each question separately, starting in each case from the data used to compute the original ROI in (1) above. 2. Using Lean Production, the company is able to reduce the average level of inventory by $93,000. 3. The company achieves a cost savings of $7,000 per year by using less costly materials. 4. The company…

Whitman Company Income Statement Sales (38,000 units $41.60 per unit) Cost of goods sold (38,000 units x $23 per unit) Gross margin Selling and administrative expenses $ 1,580,800 874,000 706,800 475,000 Net operating income $ 231,800 The company's selling and administrative expenses consist of $285,000 per year in fixed expenses and $5 per unit sold in variab expenses. The $23 unit product cost given above is computed as follows: Direct materials Direct labor Variable manufacturing overhead $ 11 4 4 Fixed manufacturing overhead ($216,000 + 54,000 units) Absorption costing unit product cost 4 $ 23 Required: 1. Redo the company's Income statement in the contribution format using variable costing. 2. Reconcile any difference between the net operating Income on your variable costing Income statement and the net operating Income on the absorption costing Income statement above. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Redo the company's…

Darby Company, operating at full capacity, sold 124,200 units at a price of $84 per unit during the current year. Its income statement is as follows: Sales     $10,432,800 Cost of goods sold     3,696,000 Gross profit     $6,736,800 Expenses:       Selling expenses $1,848,000     Administrative expenses 1,120,000     Total expenses     2,968,000 Income from operations     $3,768,800 The division of costs between variable and fixed is as follows:   Variable Fixed Cost of goods sold 60%   40%   Selling expenses 50%   50%   Administrative expenses 30%   70%   Management is considering a plant expansion program for the following year that will permit an increase of $924,000 in yearly sales. The expansion will increase fixed costs by $123,200, but will not affect the relationship between sales and variable costs. 1.  Determine the total variable costs and the total fixed costs for the current year. Total variable costs $fill in the blank 1 Total fixed…

During Heaton Company’s first two years of operations, it reported absorption costing net operating income as follows: Year 1 Year 2 Sales (@ $62 per unit) $ 1,178,000 $ 1,798,000 Cost of goods sold (@ $42 per unit) 798,000 1,218,000 Gross margin 380,000 580,000 Selling and administrative expenses* 306,000 336,000 Net operating income $ 74,000 $ 244,000 * $3 per unit variable; $249,000 fixed each year. The company’s $42 unit product cost is computed as follows: Direct materials $ 8 Direct labor 11 Variable manufacturing overhead 5 Fixed manufacturing overhead ($432,000 -: 24,000 units) 18 Absorption costing unit product cost $ 42 Production and cost data for the first two years of operations are: Year 1 Year 2 Units produced 24,000 24,000 Units sold 19,000 29,000 Required: Using variable costing, what is the unit product cost for both years? What is the variable costing net operating income in Year 1 and in Year 2? Reconcile the absorption costing and the variable costing net operating…

Calculating Residual Income East Mullett Manufacturing earned operating income last year as shown in the following income statement: Sales $3,750,000 Cost of goods sold 2,250,000 Gross margin $1,500,000 Selling and administrative expense 1,200,000 Operating income $ 300,000 Less: Income taxes (@ 40%) 120,000    Net income $ 180,000 At the beginning of the year, the value of operating assets was $1,600,000. At the end of the year, the value of operating assets was $1,400,000. East Mullett requires a minimum rate of return of 5%. What is the residual income?

Westerville Company reported the following results from last year’s operations: Sales $ 1,500,000 Variable expenses 690,000 Contribution margin 810,000 Fixed expenses 435,000 Net operating income $ 375,000 Average operating assets $ 1,250,000 At the beginning of this year, the company has a $350,000 investment opportunity with the following cost and revenue characteristics: Sales $ 420,000   Contribution margin ratio 70 % of sales Fixed expenses $ 252,000   The company’s minimum required rate of return is 10%. 1. Assume that the contribution margin ratio of the investment opportunity was 65% instead of 70%. If Westerville’s Chief Executive Officer will earn a bonus only if her residual income from this year exceeds her residual income from last year, would she pursue the investment opportunity? yes or no 2.  Would the owners of the company want her to pursue the investment opportunity?

Divisions A and B of Denner Company reported the following results for October:   Division A Division B Sales $90,000 $150,000 Variable Expenses as a Percentage of Sales 70% 60% Segment Margin $2,000 $23,000 If common fixed expenses were $31,000, what were the total fixed expenses?

Westerville Company reported the following results from last year’s operations:   Sales $ 1,800,000 Variable expenses 740,000 Contribution margin 1,060,000 Fixed expenses 700,000 Net operating income $ 360,000 Average operating assets $ 1,200,000   At the beginning of this year, the company has a $400,000 investment opportunity with the following cost and revenue characteristics:   Sales $ 600,000   Contribution margin ratio 60 % of sales Fixed expenses $ 288,000     The company’s minimum required rate of return is 10%.   2. What is last year’s turnover? (Round your answer to 1 decimal place.)   3. What is last year’s return on investment (ROI)? (Round your intermediate calculations to 1 decimal place.)   4. What is the margin related to this year’s investment opportunity?   5. What is the turnover related to this year’s investment opportunity? (Round your answer to 1 decimal place.)