+1-415-670-9189
info@expertsmind.com
How does this change the contribution towards profitability
Course:- Accounting Basics
Reference No.:- EM131567717




Assignment Help
Expertsmind Rated 4.9 / 5 based on 47215 reviews.
Review Site
Assignment Help >> Accounting Basics

Problem -

Part I -

Herrestad Company does produce and sell two products and the details below will be used to prepare a segmented income statement (showing the income for each product and the total) for the company. Use ABC to allocate all fixed costs to the two products.

Background information    TotalProd AProd BBeginning inventory0  Units produced10,0002,5007,500Units sold8,0002,0006,000    Selling price per unit$255480180Variable costs per unit   Direct material10028040Direct labor606060Variable overhead254020Variable selling and admin. exp.10139    Fixed costs   Fixed manufacturing overhead200,000  Fixed selling and administrative100,000      Production runs (not $)1006535Number of sales reps (not $)251510Here are the first few lines of the segmented income statement to help you get started. Complete the statement in good format and make sure you allocate the fixed costs to the two products. When done, comment on the information and the relative profitability of the two products.

Herrestad CompanySegmented Income Statement for the period ending Dec. 31, 2015 ABTotalSales$960,000$1,080,000$2,040,000Variable costs:   Direct material560,000240,000800,000

Part II -

Differential analysis involves knowing which costs are relevant, i.e. future costs that vary among alternatives. It is important to know what information to use and not just how to execute the analysis.

Herrestad Company receives an offer to make a new product, called C, for a new customer. The customer wants to buy 1,000 units. Product C has the same cost structure as product B with three exceptions. The new customer is only willing to pay $150 per unit, direct materials costs will decrease by $12 per unit and Herrestad does not have to incur any variable selling and administrative expenses.

  • Make a list of the expenses and amounts that are relevant for this decision. How much will the sale of this product contribute to the profitability of Herrestad?
  • What if the company only pays $140 per unit? How does this change the contribution towards profitability?
  • If you were the manager, would you accept this order? What considerations, other than financial would enter into your decision?



Put your comment
 
Minimize


Ask Question & Get Answers from Experts
Browse some more (Accounting Basics) Materials
Carrie Underwood believes that by establishing a loss contingency for uncollectible receivables, a company provides financial protection against the loss. What does the aut
At December 31, 2007 and 2008, Sloan Corp. had outstanding 2,000 shares of $100 par value 8% cumulative preferred stock and 10,000 shares of $10 par value common stock. At D
Net income (or net loss) during 2010, assuming that as of December 31, 2010, assets were $960,000, liabilities were $156,000, and no additional capital stock was issued or d
Speedy Parcel Service operates a fleet of delivery trucks in a large metropolitan area. A careful study by the company's cost analyst has determined that if a truck is drive
Heva Company is an American company that prepares its financial statements under US GAAP. In 2014, the company reported income of $5,000,000 with stockholders' equity of $
The cards are placed in a bin, and 30 winners  will be drawn. Considering the 30 winners as a sample from all of the persons filling out such cards, is this a probability sa
The kurten corporation is authorized to issue $500000 0f 8% bonds interest on the bond payable semiannually ;the bond are dated january 1,2010 and are due december 31,2015
Create a business process level REA model (in grammar form) for Quandrax Computers' acquisition/payment process. Be sure to include all relevant entities, relationships, att