Data: “I’ll never understand this accounting stuff,” Ricardo Mulliade yelled, wa
ID: 2423201 • Letter: D
Question
Data:
“I’ll never understand this accounting stuff,” Ricardo Mulliade yelled, waving the income statement he had just received from his accountant in the morning mail. “Last month (February), we sold 1,000 stuffed Edmonds Community College mascots and earned $6,850 in operating income. This month (March), when we sold 1,500, I thought we’d make $10,275. But his income statement shows an operating income of $12,100! How can I ever make plans if I can’t predict my income? I’m going to give Binta one last chance to explain this to me,” he declared as he picked up the phone to call Binta Jallow, his accountant.
“Will you try to explain this operating income thing to me one more time?” Ricardo asked Binta. “After I saw last month’s income statement, I thought each mascot we sold generated $6.85 in net income; now this month, each one generates $8.07! There was no change in the price we paid for each mascot, so I don’t understand how this happened. If I had known I was going to have $12,100 in operating income, I would have looked more seriously at adding to our product line.”
Question g. Refer back to the original information. Ricardo has decided to add stadium blankets to his product line. He has found a supplier who will provide the blankets for $32, and he plans to sell them for $55. All other variable costs currently incurred for selling mascots will be incurred for selling blankets at the same rate. Additional fixed costs of $350 per month will be incurred. He believes he can sell one blanket for every three stuffed mascots. How many blankets and stuffed mascots will Ricardo need to sell each month in order to break-even (show calculations)? (Hint: See pgs. 210 – 211 in Chapter Five of your textbook). (5 pts.) ____
Explanation / Answer
February March stuffed Edmonds Community College mascots sold 1000 1500 Operating income 6850 12100 10275 income per piece 6.85 8.07 stadium blankets selling price 55 cost 32 Income per blanket 23 Selling ratio (1blanked:3mascot) income for 3 mascots 20.55 Additional income per blanket 2.45 Additional fixed cost 350 Additional blanket to be sold 143 Addition mascot to be sold 51
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