1. Calculate the operating income of Titan for Year 4 and Year 5;
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:As a direct result of your work, quality significantly improved during the latest year leading to an increase in sales. Sales of AllPad have increased in
tandem with an increase in unit price. Information about the current period (Year 5) and prior period (Year 4) follow.
Type of Data
Units of AllPad produced and sold
Selling price
Pounds of direct material used
Direct material cost per pound
Manufacturing capacity in units
Total conversion costs
Conversion cost per unit of capacity
Selling and customer service capacity
Total selling and customer service costs
Cost per customer of selling and customer service capacity
Assuming Titan had 70 customers in Year 4 and 80 customers Year 5,
1. Calculate the operating income of Titan for Year 4 and Year 5;
2. Calculate the net increase in operating income attributable to revenue growth.
3. Calculate the cost effect of growth for direct materials.
4. Calculate the revenue effect of price recovery.
5. Calculate the cost effect of price recovery for direct materials cost.
6. Calculate the cost effects of price recovery for conversion costs.
7. Calculate the cost effect of productivity for direct materials.
Year 4
8,000
$480
32,000
$35
12,000
$1,800,000
$150
98
$490,000
$5,000
8. Please comment on Titan Computer Company's performance from Year 4 to Year 5.
9. If Titan Computer Company elects not to eliminate any unused capacity, why might the company choose not to downsize?
10. As a business owner, how would you manage unused capacity? Please explain.
Year 5
9,000
$490
34,200
$36
12,000
$1,848,000
$154
96
$518,400
$5,400
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