Number 5 Birchfield Company reports the following operating results for the month of February: sales $900,000 (units 15,000); variable costs $472,500, and Tixed costs $202,500. Management is considering the following independent courses of action to increase net income Increase selling price by 2.5% WIth no change in total variable costs or units sold 1. 2 Reduce variable costs to 49% of sales. Instructions Compute the net income to be earned under each alternative. Which course of action will produce the highest net income? (а) Sydtotm $250 Birchfield's management is looking at longer term solutions to improve net income One of the options they have reviewed will increase fixed expenses by $27,500 while reducing variable expenses by $2 per unit. Management feels that with these changes the price of the product could be reduced by $1 per unit. The decrease in price will then result in an increase in unit sales of 5%. Compute the net income to be earned under this alternative. Do you recommend this option? Why or why not? (b) brating. nd by 260 0C0T rgin of uniety ralio, det (C) arce Tasty Des (4) ver 0de Set LO0 62.90 150 0 31000 Satet ate Flre the degree of oper 50.0007 could ths oplion ty on do you for Tacy Cal teria?

Number 5 Birchfield Company reports the following operating results for the month of February: sales $900,000 (units 15,000); variable costs $472,500, and Tixed costs $202,500. Management is considering the following independent courses of action to increase net income Increase selling price by 2.5% WIth no change in total variable costs or units sold 1. 2 Reduce variable costs to 49% of sales. Instructions Compute the net income to be earned under each alternative. Which course of action will produce the highest net income? (а) Sydtotm $250 Birchfield's management is looking at longer term solutions to improve net income One of the options they have reviewed will increase fixed expenses by $27,500 while reducing variable expenses by $2 per unit. Management feels that with these changes the price of the product could be reduced by $1 per unit. The decrease in price will then result in an increase in unit sales of 5%. Compute the net income to be earned under this alternative. Do you recommend this option? Why or why not? (b) brating. nd by 260 0C0T rgin of uniety ralio, det (C) arce Tasty Des (4) ver 0de Set LO0 62.90 150 0 31000 Satet ate Flre the degree of oper 50.0007 could ths oplion ty on do you for Tacy Cal teria?

Managerial Accounting: The Cornerstone of Business Decision-Making

7th Edition

ISBN:9781337115773

Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Publisher:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Chapter7: Cost-volume-profit Analysis

Section: Chapter Questions

Problem 46E: Lotts Company produces and sells one product. The selling price is 10, and the unit variable cost is...

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Appendix Absorption costing income statement On June 30, the end of the first month of operations, Tudor Manufacturing Co. prepared the following income statement, based on the variable existing concept: Sales (420,000 units) 7,450,000 Variable cost of goods sold: Variable cost of goods manufactured (500,000 units x 14 per unit) 7,000,000 Less ending inventory (80,000 units x 14 per unit) 1,120,000 Variable cost of goods sold 5,880,000 Manufacturing margin 1,570,000 Variable selling and administrative expenses 80,000 Contribution margin 1,490,000 Fixed costs: Fixed manufacturing costs 160,000 Fixed selling and administrative expenses 75,000 235,000 Income from operations 1,255,000 a. Prepare an absorption costing income statement. b. Reconcile the variable costing income from operations of 1,255,000 with the absorption costing income from operations determined in (a).
Starling Co. manufactures one product with a selling price of 18 and variable cost of 12. Starlings total annual fixed costs are 38,400. If operating income last year was 28,800, what was the number of units Starling sold? a. 4,800 b. 6,400 c. 5,600 d. 11,200
A company produces two products. E and F in batches of 100 units. The production and cost data are: The company can only perform 12,000 set-ups each period yet there is unlimited demand for each product. What is the differential profit from producing product E instead of product F for the year? A. $216,000 B. $204,000 C. $12,000 D. $54,000
Lotts Company produces and sells one product. The selling price is 10, and the unit variable cost is 6. Total fixed cost is 10,000. Required: 1. Prepare a CVP graph with Units Sold as the horizontal axis and Dollars as the vertical axis. Label the break-even point on the horizontal axis. 2. Prepare CVP graphs for each of the following independent scenarios: (a) Fixed cost increases by 5,000, (b) Unit variable cost increases to 7, (c) Unit selling price increases to 12, and (d) Fixed cost increases by 5,000 and unit variable cost is 7.
Income Statements under Absorption and Variable Costing In the coming year, Kalling Company expects to sell 28,700 units at 32 each. Kallings controller provided the following information for the coming year: Required: 1. Calculate the cost of one unit of product under absorption costing. 2. Calculate the cost of one unit of product under variable costing. 3. Calculate operating income under absorption costing for next year. 4. Calculate operating income under variable costing for next year.
Estimated income statements, using absorption and variable costing Prior to the first month of operations ending October 31, Marshall Inc. estimated the following operating results: The company is evaluating a proposal to manufacture 50,000 units instead of 40,000 units, thus creating an ending inventory of 10,000 units. Manufacturing the additional units will not change sales, unit variable factory overhead costs, total fixed factory overhead cost, or total selling and administrative expenses. a. Prepare an estimated income statement, comparing operating results if 40,000 and 50,000 units are manufactured in (1) the absorption costing format and (2) the variable costing format. b. What is the reason for the difference in operating income reported for the two levels of production by the absorption costing income statement?