prepare an income statement, Managerial Accounting

Adm2341 manufactures and sells four different products. The following data are extracted from the most recent financial statements:

 

Products

 

A

B

C

D

Sales

Cost of goods sold

   Direct materials

   Direct labour

   Manufacturing overhead

S&A expenses

Operating income

$2,500,000

 

300,000

500,000

     600,000

 300,000

800,000

$2,000,000

 

400,000

600,000

     800,000

300,000

(100,000)

$1,500,000

 

200,000

400,000

     900,000

150,000

(150,000)

$   4,000,000

 

900,000

1,600,000

  300,000

 500,000

700,000


For each product, 50% of manufacturing overhead is variable costs and variable S&A expenses are equal to 10% of sales. The remaining portion includes traceable and common fixed costs.

The company is considering disposing of the Product C since it has been consistently unprofitable for a number of years. Admw2341's Management team approached you for help and advice on this matter.
 
REQUIRED

1) Prepare an income statement showing the appropriate performance of each product.

2) Adm2341's Top management asked you to provide them with a "decision rule" they could apply regarding Product C. Identify any additional information needed to implement your "decision rule".

3) To rationalise your decision on Product C, you have collected the following data:

 a) If product C is eliminated, Product D annual sales will increase by $10%. The Variable cost structure and S&A fixed expenses will be unchanged.

 b) If Product C is eliminated, Product A annual sales will drop by 10 %. The  Variable cost structure and S&A fixed expenses will be unchanged.

 c) If Product C is dropped, the management of the company feels it can save annually a total of $200,000 of fixed manufacturing overhead and S&A expenses.

Do you recommend to Adm2341's Management to drop Product C? Why ?

Posted Date: 3/13/2013 2:39:56 AM | Location : United States







Related Discussions:- prepare an income statement, Assignment Help, Ask Question on prepare an income statement, Get Answer, Expert's Help, prepare an income statement Discussions

Write discussion on prepare an income statement
Your posts are moderated
Related Questions
Scenario - Ahi Corporation is one of your clients in Hawaii. The company had a good year last year and owes the IRS $100,000,000, due on March 15. There are no penalties or interes

Arrival Rates, Service Rates, and Traffic Intensity The (average) arrival rate is the rate of arrival of customers at a queue, and is often denoted by x. If 10 customers arr

ADVANTAGES OF "ABC ANALYSIS" The advantages derived from this analysis and its consequent follow up are summarized below: 1) Facilities selective control and thereby save va

The Ragan Corporation uses a process cost system. The company started March with 2,300 units in Work in Process-Dept. A. During the month 4,000 units were started. At the end of th

Hornsby Manufacturing has four categories of overheads. The four categories and the expected overhead costs for each category for next year are as follows:   Maintenance  $140,000


Disadvantages of zero base budgeting 1) It is not suitable for all the activities in an organization 2) It has limited application in a profit making organization. In this c

Illustration of short-term decisions These are, to a significant extent, determined by the excellence of the firm's long-term decisions. Illustration of short-term decisions in

Cash is a significant current asset for the operations of business. Cash is the fundamental input that maintains business running smoothly and continuously. In excess of cash and l

School problem is asking to calculate the work in progress inventory for the beginning of a month without providing previous month data.