“I’ll never understand this accounting stuff,” Ricardo Mulliade yelled, waving t
ID: 2423511 • Letter: #
Question
“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 XX 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.”
Ricardo wasn’t happy with the projected income statements you showed him for a sales level of 500 stuffed mascots. He wants to know how many stuffed mascots he will need to sell to earn $3,700 in operating income. As a safety net, he also wants to know how many stuffed mascots he will need to sell to break even. (5 pts.) ____
Explanation / Answer
Operating income per unit After 1000 units = $12,100- $6850/ 1,500-1,000 = $5,250/500 =$10.5
So contribution per unit = $10.5
Is sales was 1,000 then contribution = $10.5 * 1,000 = $10,500
Fixed cost = Contribution - operating income = $10,500 - $6850 = $3,650
Projected income statement for 500 units= $10.5 * 500 - 3,650 = $1,600
Number of stuffet mascots = Fixed cost+profit /contribution per unit =$3,650+$3,700 / 10.5 = 700 stuffed mascots
Break even (units)= Fixed cost / contribution per unit = $3,650 / 10.5 = 348 stuffed mascots(approx).
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.