Please help in below questions, thank you! 2. Biden Company sells two items, pro
ID: 2549214 • Letter: P
Question
Please help in below questions, thank you!
2. Biden Company sells two items, product A and product B. The company is considering dropping product B. It is expected that sales of product A will increase by 40% as a result. Dropping product B will allow the company to cancel its monthly equipment rental costing S200 per month. The other existing equipment will be used for additional production of product A. One employee earning $500 per month can be terminated if product B production is dropped. Biden's other fixed costs are allocated and will continue regardless of the decision made. A condensed, budgeted monthly income statement with both products follows Sales Direct materials Direct labor Equipment rental Product A S10,000 2,500 2,000 300 Other allocated overhead 1000 $4,200 Product B S 8,000 2,000 1,200 2,600 2,100 S 100 Total $18,000 4,500 3,200 2,900 3,100 S 4,300 Operating income Required A. If dropping product B, what is the total incremental change in revenue? (1 pt.) B. If dropping product B, what is the total incremental change in costs? (1 pt.,) C. If dropping product B, what is the total incremental change in profits? (1 pt.)Explanation / Answer
Solution (2)
Given information to be used:
Changes after dropping product B
-Sales of Product A will increase by 40%.
-Cancel monthly equipment rental costing $ 200 per month.
-One employee earning $ 500per month can be terminated.
-Other fixed costs are allocated and will continue regardless of the decision.
Budgeted monthly income statement after above changes
Particulars
Amount ($)
*Sales
14,000
Direct material
2,500
**Direct Labor
1,500
***Equipment Rent
100
Other allocated overhead
1,000
Operating Income
8,900
*Sales= $ 10,000 + 40% of $ 10,000 =$ 14,000
**Direct Labor = $ 2,000 - $ 500 = $ 1,500
It is assumed that the labor to be termination if production of product B is dropped is a part of direct labor.
*** Equipment Rent = $ 300 -$ 200 = $ 100
Statement of change (monthly) because of dropping product B
Particulars
Before dropping Product B ($)
After dropping Product B ($)
Amount of Change ($) (Decrease)
Sales
18,000
14,000
4,000
Direct material
4,500
2,500
2,000
Direct Labor
3,200
1,500
1,700
Equipment Rent
2,900
100
2,800
Other allocated overhead
3,100
1,000
2,100
Operating Income
4,300
8,900
4,600 Increase
(A)If dropping product B, what is total incremental change in revenue?
Monthly Incremental change in revenue = $ 4,000 per month
Total Incremental change in revenue = $ 4,000 per month X 12 = $ 48,000
(B)If dropping product B, what is total incremental change in costs?
Monthly Incremental change in costs
= Direct material + Direct Labor + Equipment Rent + Other allocated overhead
=$ 2,000 + $ 1,700 + $ 2,800 + $ 2,100
=$ 8,600 per month
Total Incremental change in revenue = $ 8,600 per month X 12 = $ 103,200
(C)If dropping product B, what is total incremental change in profits?
Monthly Incremental change in profit = $ 4,600 per month
Total Incremental change in profit = $ 4,600 per month X 12 = $ 55,200 (Increase)
Solution 3
(A)Contribution Margin using the variable-costing approach.
= Sales- Variable cost of goods sold* – Variable nonmanufacturing costs
= (24,000 X $ 50) - $ 420,000- $ 144,800
= $ 635,200 (Answer)
*Variable cost of goods sold
=Opening inventory + Variable manufacturing costs - Closing inventory**
= 0 +$ 525,000 - $ 105,000
= $ 420,000
** Closing inventory= Closing inventory units X Variable manufacturing cost per unit
= 6,000 X ($525,000 / 30,000 units)
=6,000 X $ 17.5
=$ 105,000
(B)Operating income using the variable-costing approach.
= Contribution margin - Fixed manufacturing costs – Fixed nonmanufacturing costs
= $ 635,200 - $ 372,000 - $ 77,400
= $ 185,800 (Answer)
(C)Gross Margin using the absorption-costing approach.
= Sales- Cost of goods sold*
= (24,000 X $ 50) - $ 717,600
= $ 482,400 (Answer)
*Cost of goods sold
=Opening inventory + (Variable manufacturing costs + Fixed manufacturing costs) - Closing inventory**
= 0 + ($ 525,000+ $ 372,000) - $ 179,400
= $ 717,600
** Closing inventory= Closing inventory units X Total manufacturing cost per unit
= 6,000 X [$ 525,000+ $ 372,000) / 30,000 units]
=6,000 X $ 29.9
=$ 179,400
(D)Operating income using the absorption-costing approach.
=Gross margin - Variable nonmanufacturing costs- Fixed nonmanufacturing costs
= $ 482,400 - $ 144,800 - $ 77,400
= $ 260,200 (Answer)
Particulars
Amount ($)
*Sales
14,000
Direct material
2,500
**Direct Labor
1,500
***Equipment Rent
100
Other allocated overhead
1,000
Operating Income
8,900
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.