Problem 6, page 316- Neilsen's Woodworking Company (Pricing)Requirement: What price must be set to earn a profit of 8% of sales if they entity plans tooperate at capacity?Problem 6 (Pricing)Neilsen's Woodworking Company came to you for assistance when thebookkeeper presented the income statement showing large loss for thesecond year of operations: The loss of P70,000 was expected for the firstyear when the company operated at low level. However, the management ofNeilsen's Woodworking was shocked to discover a loss of P160,000 for thesecond year.The president of the company could not understand how they could beoperating at near-capacity and losing money. The company was consistentlyshort of cash, a common problem when operations are expanding.From your preliminary examinations, you found very poor accountingrecords. You are satisfied that the data in the financial statements are correctand that there is no significant fraud. The company manufactures a line ofkitchen cabinets. Because of the lack of detailed records, it is impossible todevelop data about the cost of the prodúct. The selling price was set by uhepresident to undersell competition. Condensed income statements arepresented below.NEILSEN'S WOODWORKINGIncome Statement20X3 and 20X420X420X3P 100,000Sales (P40 each)Operating expenses:Beginning inventory of materialsOperating expenseP 400.000P.190,000P. 190,00020.000P 170,000P(70,000)P 20,000570,000P 590,00030,000P 560,000P(160.000)TotalEnding inventory of materialsExpenses for the yearNet loss 317Other data:Units produced2,500 units10,000 units2,500 units10,000 unitsUnits soldP100,000Assets invested in businessP100,00012,000Capacity in units12,000SOLUTION & ANSWER:

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Requirement: What price must be set to earn a profit of 8% of sales if they entity plans to operate at capacity? Problem 6 (Pricing) Neilsen's Woodworking Company came to you for assistance when the bookkeeper presented the income statement showing large loss for the second year of operations: The loss of P70,000 was expected for the first year when the company operated at low level. However, the management of Neilsen's Woodworking was shocked to discover a loss of P160,000 for the

Requirement: What price must be set to earn a profit of 8% of sales if they entity plans to operate at capacity? Problem 6 (Pricing) Neilsen's Woodworking Company came to you for assistance when the bookkeeper presented the income statement showing large loss for the second year of operations: The loss of P70,000 was expected for the first year when the company operated at low level. However, the management of Neilsen's Woodworking was shocked to discover a loss of P160,000 for the

Survey of Accounting (Accounting I)

8th Edition

ISBN:9781305961883

Author:Carl Warren

Publisher:Carl Warren

Chapter11: Cost-volume-profit Analysis

Section: Chapter Questions

Problem 11.2.8P

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Cost Classification, Income Statement Gateway Construction Company, run by Jack Gateway, employs 25 to 30 people as subcontractors for laying gas, water, and sewage pipelines. Most of Gateways work comes from contracts with city and state agencies in Nebraska. The companys sales volume averages 3 million, and profits vary between 0 and 10% of sales. Sales and profits have been somewhat below average for the past 3 years due to a recession and intense competition. Because of this competition, Jack constantly reviews the prices that other companies bid for jobs. When a bid is lost, he analyzes the reasons for the differences between his bid and that of his competitors and uses this information to increase the competitiveness of future bids. Jack believes that Gateways current accounting system is deficient. Currently, all expenses are simply deducted from revenues to arrive at operating income. No effort is made to distinguish among the costs of laying pipe, obtaining contracts, and administering the company. Yet all bids are based on the costs of laying pipe. With these thoughts in mind, Jack looked more carefully at the income statement for the previous year (see below). First, he noted that jobs were priced on the basis of equipment hours, with an average price of 165 per equipment hour. However, when it came to classifying and assigning costs, he needed some help. One thing that really puzzled him was how to classify his own 114,000 salary. About half of his time was spent in bidding and securing contracts, and the other half was spent in general administrative matters. Required: 1. Classify the costs in the income statement as (1) costs of laying pipe (production costs), (2) costs of securing contracts (selling costs), or (3) costs of general administration. For production costs, identify direct materials, direct labor, and overhead costs. The company never has significant work in process (most jobs are started and completed within a day). 2. Assume that a significant driver is equipment hours. Identify the expenses that would likely be traced to jobs using this driver. Explain why you feel these costs are traceable using equipment hours. What is the cost per equipment hour for these traceable costs?
Gelbart Company manufactures gas grills. Fixed costs amount to 16,335,000 per year. Variable costs per gas grill are 225, and the average price per gas grill is 600. Required: 1. How many gas grills must Gelbart Company sell to break even? 2. If Gelbart Company sells 46,775 gas grills in a year, what is the operating income? 3. If Gelbart Companys variable costs increase to 240 per grill while the price and fixed costs remain unchanged, what is the new break-even point?
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Break-even sales under present and proposed conditions Kearney Company, operating at full capacity, sold 400,000 units at a price of $246.60 per unit during 20Y5. Its income statement for 20Y5 is as follows: The division of costs between fixed and variable is as follows: Management is considering a plant expansion program that will permit an increase of $8,631,000 (35.000 units at $246.60) in yearly sales. The expansion will increase fixed costs by $3,600,000 but will not affect the relationship between sales and variable costs. Instructions Determine for 20Y5 the total fixed costs and the total variable costs.
Break-even sales under present and proposed conditions Kearney Company, operating at full capacity, sold 400,000 units at a price of $246.60 per unit during 20Y5. Its income statement for 20Y5 is as follows: The division of costs between fixed and variable is as follows: Management is considering a plant expansion program that will permit an increase of $8,631,000 (35.000 units at $246.60) in yearly sales. The expansion will increase fixed costs by $3,600,000 but will not affect the relationship between sales and variable costs. Instructions Determine the maximum operating income possible with the expanded plant.