Strategic Cost Management Problem 4 (Prepare and Interpret Statements; Changes in Both Sales andProduction; JIT)Nemo, Inc. manufactures and sells a unique electronic part. Operating resultsfor the first three years of activity were as follows (absorption costing basis):Year 3P800,000. P1.000,000Year 1Year 2P1,000,000SalesCost of goods sold:Beginring inventory.Add cost of goods manufacturedGoods available for sale.Less ending inventory.Cost of goods sold.Gross marginLess selling and administrative expenses.Net operating income (loss).840,000840,000280,000560,000240,00150,000P 90,000280,000760,0001,040,000190,000850,000150,000170,000P (20,000)800,000800,000800,000200,000170,000P 30,000Sales dropped by 20% during Year 2 due to the entry of several foreigncompetitors into the market. Nemo had expected sales to remain constant at50,000 units for the year, production was set at 60,000 units in order to builda buffer of protection against unexpected spurts in demand. By the start ofYear 3, management could see that spurts in demand were unlikely and that the inventory was excessive. To work off the excessive inventories, Nemo cutback production during Year 3, as shown below:Year 150,00050,000Year 260,00040,000Year 340,00050,000Production in unitsSales in units.Additional information about the company follows:a. The company's plant is highly automated. Variable manufacturing costs(direct materials, direct labor, and variable manufacturing overhead) totalonly P4 per unit, and fixed manufacturing costs total P600,000 per year.b. Fixed manufacturing costs are applied to units of product on the basis ofeach year's production. (That is, a new fixed overhead rate is computedeach year).c. Variable selling and adrhinistrative expenses are P2 per unit sold. Fixedselling and administrative expenses total P70,000 per year.d. The company uses a FIFO inventory flow assumption.Required:1. Prepare a new income statement for each year using the contributionapproach with variable costing.2. Refer to the absorption costing income statements above.a. Compute the unit product cost in each year under absorption costing.(Show how much of this cost is variable and how much is fixed).b. Reconcile the variable costing and absorption costing net operatingincome figures for each year.3. Refer again to the absorption costing income statements. Explain why netoperating income was higher in Year 2 than it was in Year I under theabsorption approach, in light of the fact that fewer units were sold in Year2 than in Year 1.4. Refer again to the absorption costing income statements. Explain why thecompany suffered a loss in Year 3 but reported a profit in Year 1, althoughthe same number of units was sold in each year.5. a. Explain how operations would have differed in Year 2 and Year 3 ifthe company had been using JIT inventory methods.b. If JIT had been in use during Year 2 and Year 3, what would thecompany's net operating income (or loss) have been in each yearunder absorption costing? Explain the reason for any differencesbetween these income figures and the figures reported by the companyin the statements above.

Name: Strategic Cost Management Problem 4 (Prepare and Interpret Statements;
Uploaded: 2024-03-20T06:32:49.000Z
Channel: Bartleby
Description: Strategic Cost Management Problem 4 (Prepare and Interpret Statements; Changes in Both Sales andProduction; JIT)Nemo, Inc. manufactures and sells a unique electronic part. Operating resultsfor the first three years of activity were as follows (absorp

As per the guidelines we can provide 3 subpart of a question. for answer of remaining question…

Business

Accounting

1. Prepare a new income statement for each year using approach with variable costing. 2. Refer to the absorption costing income statements above. a. Compute the unit product cost in each year under absorption costing. (Show how much of this cost is variable and how much is fixed). b. Reconcile the variable costing and absorption costing net operating income figures for each year. 3. Refer again to the absorption costing income statements. Explain why net operating income was higher in Year 2 than it was in Year I under the absorption approach, in light of the fact that fewer units were sold in Year 2 than in Year I.

1. Prepare a new income statement for each year using approach with variable costing. 2. Refer to the absorption costing income statements above. a. Compute the unit product cost in each year under absorption costing. (Show how much of this cost is variable and how much is fixed). b. Reconcile the variable costing and absorption costing net operating income figures for each year. 3. Refer again to the absorption costing income statements. Explain why net operating income was higher in Year 2 than it was in Year I under the absorption approach, in light of the fact that fewer units were sold in Year 2 than in Year I.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Related questions

Q: synthesis of contemporary key costing?

A: Costing refers to the process of determining the cost of a product or service

Q: ustomizing cost

A: Cost accounting is one of the accounting system that is used by the businesses. The main purpose of…

Q: Discuss the role of cost accounting in managerial decision-making, including cost classification,…

A: The category of accounting known as "cost accounting" is responsible for gathering, analysing, and…

Q: Define pricing decisions.

A: Selling Price: It refers to the price at which the product or service will be sold in the market…

Q: how Cost Managemnt decision-making plays a role in the decision-making and success of the company?

A: Cost management decision-making is a critical aspect of any business. It involves the process of…

Q: ROI formula

A: Answer

Q: Explain price improvement

A: It is a process where the purchasing customer gets the opportunity to buy shares at a lower cost…

Q: Please differentiate between centralized and decentralized operations.

Q: w product cost information is use

A: Product Cost: Product costs are costs that are incurred to make a product that's intended available…

Q: Define the term accelerated cost recovery system (AC RS)?

A: The AC RS is a method of depreciation. It is used for depreciating the property for tax purposes

Q: Estimating costs requires information • analysis, interpretation, decision-making • measurement,…

A: Estimating costs requires information • analysis, interpretation, decision-making • measurement,…

Q: evolution of Activity based costing?

A: Introduction:- Activity-based costing (ABC) is a cost accounting methodology that assigns overhead…

Q: Evaluate cost factors influencing a company's decision.

A: Cost factor is the factor or an element which is related to unit of product for which some amount of…

Concept explainers

Process Costing

Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure. 

Job Costing

Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.

ABC Costing

Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.

Topic Video

Question

Strategic Cost Management

Problem 4 (Prepare and Interpret Statements; Changes in Both Sales and
Production; JIT)
Nemo, Inc. manufactures and sells a unique electronic part. Operating results
for the first three years of activity were as follows (absorption costing basis):
Year 3
P800,000. P1.000,000
Year 1
Year 2
P1,000,000
Sales
Cost of goods sold:
Beginring inventory.
Add cost of goods manufactured
Goods available for sale.
Less ending inventory.
Cost of goods sold.
Gross margin
Less selling and administrative expenses.
Net operating income (loss).
840,000
840,000
280,000
560,000
240,00
150,000
P 90,000
280,000
760,000
1,040,000
190,000
850,000
150,000
170,000
P (20,000)
800,000
800,000
800,000
200,000
170,000
P 30,000
Sales dropped by 20% during Year 2 due to the entry of several foreign
competitors into the market. Nemo had expected sales to remain constant at
50,000 units for the year, production was set at 60,000 units in order to build
a buffer of protection against unexpected spurts in demand. By the start of
Year 3, management could see that spurts in demand were unlikely and that

the inventory was excessive. To work off the excessive inventories, Nemo cut
back production during Year 3, as shown below:
Year 1
50,000
50,000
Year 2
60,000
40,000
Year 3
40,000
50,000
Production in units
Sales in units.
Additional information about the company follows:
a. The company's plant is highly automated. Variable manufacturing costs
(direct materials, direct labor, and variable manufacturing overhead) total
only P4 per unit, and fixed manufacturing costs total P600,000 per year.
b. Fixed manufacturing costs are applied to units of product on the basis of
each year's production. (That is, a new fixed overhead rate is computed
each year).
c. Variable selling and adrhinistrative expenses are P2 per unit sold. Fixed
selling and administrative expenses total P70,000 per year.
d. The company uses a FIFO inventory flow assumption.
Required:
1. Prepare a new income statement for each year using the contribution
approach with variable costing.
2. Refer to the absorption costing income statements above.
a. Compute the unit product cost in each year under absorption costing.
(Show how much of this cost is variable and how much is fixed).
b. Reconcile the variable costing and absorption costing net operating
income figures for each year.
3. Refer again to the absorption costing income statements. Explain why net
operating income was higher in Year 2 than it was in Year I under the
absorption approach, in light of the fact that fewer units were sold in Year
2 than in Year 1.
4. Refer again to the absorption costing income statements. Explain why the
company suffered a loss in Year 3 but reported a profit in Year 1, although
the same number of units was sold in each year.
5. a. Explain how operations would have differed in Year 2 and Year 3 if
the company had been using JIT inventory methods.
b. If JIT had been in use during Year 2 and Year 3, what would the
company's net operating income (or loss) have been in each year
under absorption costing? Explain the reason for any differences
between these income figures and the figures reported by the company
in the statements above.

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Step 1

Step 2

Step 3

Step 4

Step 5

Trending now

This is a popular solution!

Step by step

Solved in 5 steps with 4 images

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.