Segment variable costing The concept that considers the cost of products manufac
ID: 2613243 • Letter: S
Question
Segment variable costing
The concept that considers the cost of products manufactured to be composed only of those manufacturing costs that increase or decrease as the volume of production rises or falls (direct materials, direct labor, and variable factory overhead).
income statement and effect on income of change in operations
Instructions
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Labels and Amount Descriptions
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Variable Costing Income Statement - Proposal 1
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Additional Question - Proposal 2
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Variable Costing Income Statement - Proposal 3
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Final Question
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View Mode Selection
X
Instructions
Valdespin Company manufactures three sizes of camping tents—small (S), medium (M), and large (L). The income statement has consistently indicated a net loss for the M size, and management is considering three proposals: (1) continue Size M, (2) discontinue Size M and reduce total output accordingly, or (3) discontinue Size M and conduct an advertising campaign to expand the sales of Size S so that the entire plant capacity can continue to be used.
If Proposal 2 is selected and Size M is discontinued and production curtailed, the annual fixed production costs and fixed operating expenses could be reduced by $46,080 and $32,240 respectively. If Proposal 3 is selected, it is anticipated that an additional annual expenditure of $34,560 for the rental of additional warehouse space would yield an additional 130% in Size S sales volume. It is also assumed that the increased production of Size S would utilize the plant facilities released by the discontinuance of Size M.
The sales and costs have been relatively stable over the past few years, and they are expected to remain so for the foreseeable future. The income statement for the past year ended June 30, 2016, is as follows:
Question not attempted.
1
Size S
Size M
Size L
Total
2
Sales
$668,000.00
$737,300.00
$956,160.00
$2,361,460.00
3
Cost of goods sold:
4
Variable costs
$300,000.00
$357,120.00
$437,760.00
$1,094,880.00
5
Fixed costs
74,880.00
138,250.00
172,800.00
385,930.00
6
Total cost of goods sold
$374,880.00
$495,370.00
$610,560.00
$1,480,810.00
7
Gross profit
$293,120.00
$241,930.00
$345,600.00
$880,650.00
8
Less operating expenses:
9
Variable expenses
$132,480.00
$155,500.00
$195,840.00
$483,820.00
10
Fixed expenses
92,160.00
103,680.00
115,200.00
311,040.00
11
Total operating expenses
$224,640.00
$259,180.00
$311,040.00
$794,860.00
12
Income from operations
$68,480.00
$(17,250.00)
$34,560.00
$85,790.00
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Labels and Amount Descriptions
In CengageNOW, a Label is a text entry that does not have an amount associated with it.
In CengageNOW, an Amount Description is a text entry other than an Account that has an amount associated with it.
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X
Variable Costing Income Statement - Proposal 1
1. Prepare an income statement for the past year in the variable costing format. Data for each style should be reported through contribution margin. The fixed costs should be deducted from the total contribution margin, as reported in the “Total” column, to determine income from operations. Refer to the lists of Labels and Amount Descriptions for the exact wording of the answer choices for text entries. Be sure to complete the statement heading. A colon (:) will automatically appear if it is required. Enter all amounts as positive numbers.
Question not attempted.
Valdespin Company
Variable Costing Income Statement
1
Size S
Size M
Size L
Total
2
3
4
5
6
7
Fixed costs:
8
9
10
11
Solution
Valdespin Company
Variable Costing Income Statement
1
Size S
Size M
Size L
Total
2
3
4
5
6
7
Fixed costs:
8
9
10
11
Points:
Feedback
Check My Work
none
X
Additional Question - Proposal 2
2. Based on the income statement prepared in (1) and the other data presented, determine the amount by which total annual income from operations would be reduced below its present level if Proposal 2 is accepted.
Points:
Feedback
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Explanation
none
X
Variable Costing Income Statement - Proposal 3
3. Prepare an income statement in the variable costing format, indicating the projected annual income from operations if Proposal 3 is accepted. Data for each style should be reported through contribution margin. The fixed costs should be deducted from the total contribution margin as reported in the “Total” column. For purposes of this problem, the expenditure of $34,560 for the rental of additional warehouse space can be added to the fixed operating expenses. Refer to the lists of Labels and Amount Descriptions for the exact wording of the answer choices for text entries. Be sure to complete the statement heading. A colon (:) will automatically appear if it is required. Enter all amounts as positive numbers.
Question not attempted.
Valdespin Company
Projected Variable Costing Income Statement
1
Size S
Size L
Total
2
3
4
5
6
7
Fixed costs:
8
9
10
11
Solution
Valdespin Company
Projected Variable Costing Income Statement
1
Size S
Size L
Total
2
3
4
5
6
7
Fixed costs:
8
9
10
11
Points:
Feedback
Check My Work
1
Size S
Size M
Size L
Total
2
Sales
$668,000.00
$737,300.00
$956,160.00
$2,361,460.00
3
Cost of goods sold:
4
Variable costs
$300,000.00
$357,120.00
$437,760.00
$1,094,880.00
5
Fixed costs
74,880.00
138,250.00
172,800.00
385,930.00
6
Total cost of goods sold
$374,880.00
$495,370.00
$610,560.00
$1,480,810.00
7
Gross profit
$293,120.00
$241,930.00
$345,600.00
$880,650.00
8
Less operating expenses:
9
Variable expenses
$132,480.00
$155,500.00
$195,840.00
$483,820.00
10
Fixed expenses
92,160.00
103,680.00
115,200.00
311,040.00
11
Total operating expenses
$224,640.00
$259,180.00
$311,040.00
$794,860.00
12
Income from operations
$68,480.00
$(17,250.00)
$34,560.00
$85,790.00
Explanation / Answer
1)
Income statement using variable costing format: Amounts in $
Particulars
Size S
Size M
Size L
Total
Sales
668,000
737,300
956,160
2,361,460
Less:
Variable costs
Variable costs
300,000
357,120
437,760
1,094,880
Variable expenses
132,480
155,500
195,840
483,820
Total variable costs
432,480
512,620
633,600
1,578,700
Contribution margin
235,520
224,680
322,560
782,760
Less:
Fixed costs
74,880
138,250
172,800
385,930
Other fixed expense
92,160
103,680
115,200
311,040
Total fixed costs
167,040
241,930
288,000
696,970
Net income
68,480
-17,250
34,560
85,790
Particulars
Size S
Size M
Size L
Total
Sales
668,000
737,300
956,160
2,361,460
Less:
Variable costs
Variable costs
300,000
357,120
437,760
1,094,880
Variable expenses
132,480
155,500
195,840
483,820
Total variable costs
432,480
512,620
633,600
1,578,700
Contribution margin
235,520
224,680
322,560
782,760
Less:
Fixed costs
74,880
138,250
172,800
385,930
Other fixed expense
92,160
103,680
115,200
311,040
Total fixed costs
167,040
241,930
288,000
696,970
Net income
68,480
-17,250
34,560
85,790