Business Decision Case Ben and Chris have been lifelong friends. They are engine
ID: 398088 • Letter: B
Question
Business Decision Case Ben and Chris have been lifelong friends. They are engineer-minded and have always dreamed of starting a manufacturing company. They want to manufacture tires, but realize that this industry is heavily regulated and that achieving profitable operations will require skillful management. Despite the odds, they form Smooth Ride, Inc., and resolve to only stay in business if they report a positive net income after the company’s first year of operations. At the end of 2016, its first year of operations, Smooth Ride reported the following summarized data
Sales (105,000 tires)....................................... $13,125,000
Production costs (120,000 tires):
Direct material.......................................... 4,750,000
Direct labor ............................................ 3,675,000
Manufacturing overhead:
Variable ............................................... 2,300,000
Fixed ................................................. 950,000
Operating expenses:
Variable ............................................... 1,050,000
Fixed ................................................. 800,000
Depreciation on machinery ................................. 455,000
Property taxes ........................................... 330,000
Personnel department expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 140,000
Explanation / Answer
Ans:
Income statement for company Smooth Ride, Inc
The net income of the company is negative.Personnel department expenses shall not be considered in calculating net income of the company.
Particulars Amount Total Revenue $13,125,000 Less:Cost of Goods sold Direct Material ($4,750,000) Direct Labor ($3,675,000) Variable manufacturing overhead ($2,300,000) Fixed manufacturing overhead ($950,000) Gross Profit $2,400,000 Less:Operating expenses Variable operating expenses ($1,050,000) Fixed operating expenses ($ 800,000) Depreciation on machinery ($455,000) Less:Property taxes (330,000) Net Income ($235,000)Related Questions
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