Homework for Ch 20 LO 4 - Sell vs. Process FurtherQuestion 1 of 2Sales price per unitPine Street Inc. makes unfinished bookcases that it sells for $59. Production costs are $38 variable and $10 fixed. Because it hasunused capacity, Pine Street is considering finishing the bookcases and selling them for $75. Variable finishing costs are expected to be$8 per unit with no increase in fixed costs. Prepare an analysis on a per unit basis showing whether Pine Street should sell unfinishedor finished bookcases. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)Cost per unitVariableFixedTotalNet income per unit$SellThe bookcases should be processed further381059IN48 i11tAProcessFurther758O8670.44/1$Net IncomeIncrease (Decrease)-16301040E :-56

Whether a product should be further processed or not? If further processing cost is less than the…

Answered: Pine Street Inc. makes unfinished…

Accounting

27th Edition

ISBN:9781337272094

Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.

Publisher:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.

Chapter21: Cost-volume-profit Analysis

Section: Chapter Questions

Problem 21.17EX

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Variable costing income statement and effect on income of change in operations Kimbrell Inc. manufacture three sizes of utility tablessmall (S), medium (M), and large (L). The income statement has consistently indicated a net loss for the M size, and management is considering three proposals: (1) continue Size M, (2) discontinue Size M and reduce total output accordingly, or (3) discontinue Size M and conduct an advertising campaign to expand the sales of Size S so that the entire plant capacity can continue to be used. If Proposal 2 is selected and Size M is discontinued and production curtailed, the annual fixed production costs and fixed operating expenses could be reduced by 142,500 and 28,350. respectively. If Proposal 3 is selected, it is anticipated that an additional annual expenditure of 85,050 for the salary of an assistant brand manager (classified as a fixed operating expense) would yield an additional 130% in Size S sales volume. It is also assumed that the increased production of Size S would utilize the plant facilities released by the discontinuance of Size M. The sales and costs have been relatively stable over the past few years, and they are expected to remain so for the foreseeable future. The income statement for the past year ended December 31, 20Y8, is as follows: Instructions 1. Prepare an income statement for the past year in the variable costing format. Use the following headings: Size S M L Total Data for each style should be reported through contribution margin. The fixed costs should lie deducted from the total contribution margin, as reported in the Total" column, to determine income from operations. 2. Based on the income statement prepared in (1) and the other data presented above, determine the amount by which total annual income from operations would be reduced below its present level if Proposal 2 is accepted. 3. Prepare an income statement in the variable costing format, indicating the projected annual income from operations if Proposal 3 is accepted. Use the following headings: Size S L Total Data for each style should be reported through contribution margin. The fixed costs should lie deducted from the total contribution margin as reported in the "Total" column. For purposes of this problem, the additional expenditure of 85,050 for the assistant brand manager's salary can be added to the fixed operating expenses. 4. By how much would total annual income increase above its present level if Proposal 3 is accepted? Explain.
Segment variable costing income statement and effect on income of change in operations Valdespin Company manufactures three sizes of camping tentssmall (S), medium (M), and large (L). The income statement has consistently indicated a net loss for the M size, and management is considering three proposals: (1) continue Size M, (2) discontinue Size M and reduce total output accordingly, or (3) discontinue Size M and conduct an advertising campaign to expand the sales of Size S so that the entire plant capacity can continue to be used. If Proposal 2 is selected and Size M is discontinued and production curtailed, the annual fixed production costs and fixed operating expenses could be reduced by 46,080 and 532,240. respectively. If Proposal 3 is selected, it is anticipated that an additional annual expenditure of 34,560 for the rental of additional warehouse space would yield an additional 130% in Size S sales volume. It is also assumed that the increased production of Size S would utilize the plant facilities released by the discontinuance of Size M. The sales and costs have been relatively stable over the past few years, and they are expected to remain so for the foreseeable future. The income statement for the past year ended June 30, 20Y9, is as follows: Instructions 1. Prepare an income statement for the past year in the variable costing: format. Use the following headings: Data for each style should be reported through contribution margin. The fixed costs should be deducted from the total contribution margin, as reported in the Total column, to determine income from operations. 2. Based on the income statement prepared in (1) and the other data presented, determine the amount by which total annual income from operations would be reduced below its present level if Proposal 2 is accepted. 3. Prepare an income statement in the variable costing format, indicating the projected annual income from operations if Proposal 3 is accepted. Use the following headings: Data for each style should be reported through contribution margin. The fixed costs should be deducted from the total contribution margin as reported in the Total column. For purposes of this problem, the expenditure of 34,560 for the rental of additional warehouse space can be added to the fixed operating expenses. 4. By how much would total annual income increase above its present level if Proposal 3 is accepted? Explain.
Break-even analysis Somerset Inc. has finished a new video game, Snowboard Challenge. Management is now considering its marketing strategies. The following information is available: Anticipated vales price per unit................ 80 Variable cost per unit......................... 35 Anticipated volume........................... 1,000,000 units Production costs.............................. 20,000,000 Anticipated advertising........................ 15,000,000 Two managers, James Hamilton and Thomas Seymour, had the following discussion of ways to increase the profitability of this new offering: James: I think we need to think of some way to increase our profitability. Do you have any ideas? Thomas: Well. I think the best strategy would be to become aggressive on price. James: How aggressive? James: lf we drop the price to 60 per unit and maintain our advertising budget at 15,000,000. I think we will generate total sales of 2,000,000 units. James: I think that's the wrong way to go. You're giving up too much on price. Instead, I think we need to follow an aggressive advertising strategy. Thomas: How aggressive? James: If we increase our advertising to a total of 25,000,000, we should be able to increase sales volume to 1,400,000 units without any change in price. Thomas: l dont think that's reasonable. We'll never cover the increased advertising costs. Which strategy is best: Do nothing, follow the advice of Thomas Seymour, orb follow James Hamilton's strategy?
Variable costs and activity bases in decision making The owner of Warwick Printing, a printing company, is planning direct labor needs for the upcoming year. The owner has provided you with the following information for next year's plans: One Color Two Color Three Color Four Color Total Number of banners 212 274 616 698 1,800 Each color on the banner must be printed one at a time. Thus, for example, a four color banner will need to be run through the printing operation four separate times. The total production volume last year was 800 banners, as follows: One Color Two Color Three Color Total Number of banners 180 240 380 800 As you can see, the four-color banner is a new product offering for the upcoming year. The owner believes that the expected 1,000-unit increase in volume from last year means that direct labor expenses should increase by 125% (1,000 800). What do you think?

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