Fundamentals Of Cost Accounting (6th Edition)
6th Edition
ISBN: 9781259969478
Author: WILLIAM LANEN, Shannon Anderson, Michael Maher
Publisher: McGraw Hill Education
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Textbook Question
Chapter 2, Problem 56E
Value Income Statement
Ralph’s Restaurant has the following information for year 2, when several new employees were added to the waitstaff:
- a. 5 percent of this cost was for food that was not used by the expiration date and 10 percent was for food that was incorrectly prepared because of errors in orders taken.
- b. 15 percent of this cost was for time spent by cooks to reprepare orders that were incorrectly prepared because of errors in orders taken.
- c. 20 percent of this cost was time taken to address customer complaints about incorrect orders.
- d. 80 percent of the building was used.
Required
- a. Using the traditional income statement format, prepare a value income statement.
- b. What value would there be to Ralph from preparing the same information in year 3?
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Supermart Food Stores (SFS) has experienced net operating losses in its frozen food products line in the last few periods. Management believes that the store can improve its profitability if SFS discontinues frozen foods. The operating results from the most recent period are:
Frozen Foods
Baked Goods
Fresh Produce
Sales
$ 120,000
$ 91,000
$ 158,175
Cost of goods sold
105,000
67,000
110,000
SFS estimates that store support expenses, in total, are approximately 20% of revenues.
The controller says that not every sales dollar requires or uses the same amount of store support activities. A preliminary analysis reveals store support activities for these three product lines are:
Activity (cost driver)
Frozen Foods
Baked Goods
Fresh Produce
Order processing (number of purchase orders)
10
45
100
Receiving (number of deliveries)
12
55
120
Shelf-stocking (number of hours per delivery)
2
0.5
4
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Decision to Discontinue a Product
On the basis of the following data, the general manager of Foremost Footwear Inc. decided to discontinue Children’s Shoes because it reduced income from operations by $10,000. What is the flaw in this decision if it is assumed that fixed costs would not be materially affected by the discontinuance?
Foremost Footwear Inc.
Product-Line Income Statement
For The Year Ended April 30, 20Y7
Children's Shoes
Men's Shoes
Women's Shoes
Total
Sales
$165,000
$300,000
$500,000
$965,000
Costs of goods sold:
_______________
___________
__________
____________
Variable cost
$105,000
$150,000
$220,000
$475,000
Fixed costs
32,000
60,000
120,000
212,000
Total cost of goods sold
$137,000
$210,000
$340,000
$687,000
Gross profit
$28,000
$90,000
$160,000
$278,000
Selling and adminstrative expenses:
____________
____________
____________
___________
Variable selling and admin. expenses
$21,000
$45,000
$95,000
$161,000
Fixed selling and admin.…
Chapter 2 Solutions
Fundamentals Of Cost Accounting (6th Edition)
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