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Moses Moonrocks Inc. has developed a balanced scorecard with a measure map that suggests that the number of erroneous shipments has a direct effect on operating profit. The company estimates that every shipment error leads to a reduction of revenue by $3,000 and increased costs of about $2,000. If the company has the following budgeted sales and costs for next month (without accounting for any possible shipping errors), determine how many shipping errors the company can afford to have and still break even:

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Financial And Managerial Accounting

15th Edition
WARREN + 1 other
Publisher: Cengage Learning,
ISBN: 9781337902663

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Chapter
Section
BuyFindarrow_forward

Financial And Managerial Accounting

15th Edition
WARREN + 1 other
Publisher: Cengage Learning,
ISBN: 9781337902663
Chapter 28, Problem 3BE
Textbook Problem
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Moses Moonrocks Inc. has developed a balanced scorecard with a measure map that suggests that the number of erroneous shipments has a direct effect on operating profit. The company estimates that every shipment error leads to a reduction of revenue by $3,000 and increased costs of about $2,000. If the company has the following budgeted sales and costs for next month (without accounting for any possible shipping errors), determine how many shipping errors the company can afford to have and still break even:

Chapter 28, Problem 3BE, Moses Moonrocks Inc. has developed a balanced scorecard with a measure map that suggests that the

To determine

Identify the possible number of shipping errors Company MM could make and still achieve the break even.

Explanation of Solution

Net income: The bottom line of income statement which is the result of excess of earnings from operations (revenues) over the costs incurred for earning revenues (expenses) is referred to as net income.

Calculate the net income for Company MM:

ParticularsAmount ($)
Sales$230,000
Cost of goods sold($150,000)
Depreciation expense($30,000)
Other expense($20,000)
Net income$30,000

Table (1)

The net income for Company MM is $30,000.

Calculate the break-even for shipping errors:

Break-even = Net IncomeCost of shipping errors

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Chapter 28 Solutions

Financial And Managerial Accounting
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