Compute operating income for april, may and june

Assignment Help Accounting Basics
Reference no: EM13125019

Mile-High Foods, Inc., was formed in March 2011 to provide prepackaged snack boxes for a new low cost regional airline beginning on April 1. The company has just leased warehouse space central to the two airports to store materials. To move packaged materials from the warehouses to the airports, where final assembly will take place, Mile-High must choose whether to lease a delivery truck and pay a full-time driver at a fixed cost of $5,000 per month, or pay a delivery service a rate equivalent to $0.40 per box. This cost will be included in either fixed manufacturing overhead or variable manufacturing overhead, depending on which option is chosen. The company is hoping for rapid growth, as sales forecasts for the new airline are promising. However, it is essential that Mile-High managers carefully control costs in order to be compliant with their sales contract and remain profitable. Ron Spencer, the company's president, is trying to determine whether to use absorption, variable, or throughput costing to evaluate the performance of company managers. For absorption costing, he intends to use the practical-capacity level of the facility, which is 20,000 boxes per month. Production-volume variances will be written off to cost of goods sold.
Costs for the three months are expected to remain unchanged. The costs and revenues for April, May, and June are expected to be as follows:
Sales revenue $6.00 per box
Direct material cost $1.20 per box
Direct manufacturing labor cost $0.35 per box
Variable manufacturing overhead cost $0.15 per box
Variable delivery cost (if this option is chosen) $0.40 per box
Fixed delivery cost (if this option is chosen) $5,000 per month
Fixed manufacturing overhead costs $15,000 per month
Fixed administrative costs $28,000 per month
Projected production and sales for each month follow. High production in May is the result of an anticipated surge in June employee vacations.
April/May/June sale (units) 12,000/12,500/13,000
April/May/June Production 12,200/18,000/9,000

Required
1. Compute operating income for April, May, and June under absorption costing, assuming that Mile-High opts to use
a. the leased truck and salaried driver.
b. the variable delivery service.
2. Compute operating income for April, May, and June under variable costing, assuming that Mile-High opts to use
a. the leased truck and salaried driver.
b. the variable delivery service.
3. Compute operating income for April, May, and June under throughput costing, assuming that Mile-High opts to use
a. the leased truck and salaried driver.
b. the variable delivery service.
4. Should Mile-High choose absorption, variable, or throughput costing for evaluating the performance of managers? Why? What advantages and disadvantages might there be in adopting throughput costing?
5. Should Mile-High opt for the leased truck and salaried driver or the variable delivery service? Explainbriefly.

Reference no: EM13125019

Questions Cloud

Confidence interval of proportion of students-hate business : A study of 49 business graduates reported 42 students listed stats 100 as their least favorite class. what would be the 99.8% confidence interval of the proportion of business students who hate, hate, hate business?
Proceed until all substances have reached their equilibrium : If the reaction is allowed to proceed until all substances have reached their equilibrium concentrations, determine delta G for the reaction.
Explain how should mary treat the cost of cleanup : Defend the historical cost principle. Use the conceptual frame work concepts and definitions in your defense. Explain how should Mary, treat the cost of cleanup? Is it a land cost, a building cost, or an expense? Explain.
Common meaning of the word linear : What is the common meaning of the word linear? The mathematical meaning? What is a linear equation? A non-linear equation?
Compute operating income for april, may and june : Mile-High Foods, Inc., was formed in March 2011 to provide prepackaged snack boxes for a new low cost regional airline beginning on April 1.
What is the project net present value : A project will require an initial investment of $750,000 and will return $200,000 each year for five years. If taxes are ignored and the required rate of return is 9%, what is the project's net present value? Based on this analysis, should the com..
Determine the ph and the percent ionization : PH And Percent Ionization, 1. Determine the pH and the percent ionization in a 0.50M solution of KOBr. The Ka for HOBr = 2.5 x 10 ^ -9.
Probability that next week-s show will have many viewers : Assume this distribution follows a normal distribution. What is the probability that next week's show will: Have between 29 and 37 million viewers?
Accomplished or learned : Is for you to choose something in your life that takes on a poetic and symbolic meaning for you. Something you see or come in contact with, someone who has influenced you in life -- someone or something that is symbolic for you of all you have accomp..

Reviews

Write a Review

 

Accounting Basics Questions & Answers

  Work in process inventory

All of the following would be entries in assigning accumulated costs to the Work In Process Inventory except:

  Money market-capital market

Compare and contrast the characteristics features of the securities of money market with those of the capital market.

  Computing free cash flow

During 2006, NICO Corporation had EBIT of $100,000, a change in net fixed assets of $400,000, an increase in net current assets of $100,000, an increase in spontaneous current liabilities of $400,000, a depreciation expense of $50,000, and a tax r..

  Profit and loss agreement

Partners A and B have a profit and loss agreement with the following provisions: salaries of $41,600 and $38,400 for A and B, respectively; a bonus to A of 10% of net income after salaries and bonus; and interest of 10% on average capital balances..

  Trade between buyer and seller

Suppose that the terms of trade between a buyer and a seller are free on board (FOB) destination. What document provides evidence that a liability exists and might be unrecorded?

  Steps in completing the accounting cycle

Name the steps in completing the accounting cycle and explain how they impact the financial statements. What happens is a step is missed? Explain.

  What is the maximum write-off for these purchases for 2012

Hazel purchased a new business asset (five-year asset) on September 30, 2012, at a cost of $100,000. On October 4, 2012, Hazel placed the asset in service. This was the only asset Hazel placed in service in 2012. The only election with respect to ..

  Essay on legal issues surrounding solyndra

Write down an essay on legal issues surrounding Solyndra, the California based solar panel manufacturer.

  Calculate the following variances

Calculate the following variances:  Direct manufacturing labor rate variance,  Direct manufacturing labor usage variance,  Direct materials price variance (how we did it in the chat session),  Direct materials usage variance

  Externalities-positive and negative

What is the definition of externality? Distinction between positive externalities (positive spillover costs) and negative externalities (negative spillover costs)? Why do externalities exist?

  Employment record retention and tax software

What employment records are important to keep? Why?

  How would we determine the cost of normal spoilage

How would we find out the cost of normal spoilage so that we can record it in general ledger? How would we fin out the cost of normal spoilage so that we can record it in general ledger

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd