Alpha Electronics Cop (AEC) manufactures and sells a unique intermediate component part that is widely used in various household electronic products. Operating results for the latest three financial years were as follows: Table 1 2019 2020 2021 Sales $1,000,000 $800,000 $1,000,000 Cost of goods sold 760,000 512,000 788,500 Gross margin 240,000 288,000 211,500 Selling and administrative expenses Net operating income / (loss) 198,000 $90.000 230,000 $(18.500) 230,000 $10.000 As the industry matures, the company is facing stiff competition from several regional players. Sales dropped 20% during 2020, against an original expectation of 40,000 units. Production for 2020 was budgeted at 50,000 units so as to build a sufficient buffer to prevent any stock- out situation from unexpected demand surge. The excess stocks from 2020 was carried over into 2021, and accordingly the budgeted production for 2021 was cut. 2019 2020 2021 Production in units Sales in units 40,000 50,000 32,000 40,000 32,000 40,000 There are the following additional information about the AEC: Fixed manufacturing overhead costs Fixed selling and administrative costs Variable costs per unit: Manufacturing cost Selling and administrative cost $600,000 per annum $70,000 per annum $4 $4 The fixed manufacturing overhead costs are applied to units of production on the basis of actual production for the year. The company uses the FIFO inventory flow assumption. There were no opening inventories for 2019.
Alpha Electronics Cop (AEC) manufactures and sells a unique intermediate component part that is widely used in various household electronic products. Operating results for the latest three financial years were as follows: Table 1 2019 2020 2021 Sales $1,000,000 $800,000 $1,000,000 Cost of goods sold 760,000 512,000 788,500 Gross margin 240,000 288,000 211,500 Selling and administrative expenses Net operating income / (loss) 198,000 $90.000 230,000 $(18.500) 230,000 $10.000 As the industry matures, the company is facing stiff competition from several regional players. Sales dropped 20% during 2020, against an original expectation of 40,000 units. Production for 2020 was budgeted at 50,000 units so as to build a sufficient buffer to prevent any stock- out situation from unexpected demand surge. The excess stocks from 2020 was carried over into 2021, and accordingly the budgeted production for 2021 was cut. 2019 2020 2021 Production in units Sales in units 40,000 50,000 32,000 40,000 32,000 40,000 There are the following additional information about the AEC: Fixed manufacturing overhead costs Fixed selling and administrative costs Variable costs per unit: Manufacturing cost Selling and administrative cost $600,000 per annum $70,000 per annum $4 $4 The fixed manufacturing overhead costs are applied to units of production on the basis of actual production for the year. The company uses the FIFO inventory flow assumption. There were no opening inventories for 2019.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
Refer to the company’ operating results reflected in Table 1. Prepare a brief report (not more than 250 words) to AEC’s senior management to explain the fluctuations in net operating income from 2019 to 2021.
Transcribed Image Text:Alpha Electronics Cop (AEC) manufactures and sells a unique intermediate component part
that is widely used in various household electronic products. Operating results for the latest
three financial years were as follows:
Table 1
2019
2020
2021
Sales
$1,000,000
S800,000 $1,000,000
Cost of goods sold
760,000
512.000
788,500
Gross margin
Selling and administrative expenses
240,000
288,000
211,500
198.000
$90.000
230.000
230,000
Net operating income / (loss)
$10.000
$(18.500)
As the industry matures, the company is facing stiff competition from several regional players.
Sales dropped 20% during 2020, against an original expectation of 40,000 units. Production
for 2020 was budgeted at 50,000 units so as to build a sufficient buffer to prevent any stock-
out situation from unexpected demand surge.
The excess stocks from 2020 was carried over into 2021, and accordingly the budgeted
production for 2021 was cut.
2019
2020
2021
Production in units
40,000
50,000
32,000
Sales in units
40,000
32,000
40,000
There are the following additional information about the AEC:
Fixed manufacturing overhead costs
Fixed selling and administrative costs
Variable costs per unit:
Manufacturing cost
Selling and administrative cost
$600,000 per annum
$70,000 per annum
$4
$4
The fixed manufacturing overhead costs are applied to units of production on
the basis of actual production for the year.
The company uses the FIFO inventory flow assumption.
There were no opening inventories for 2019.
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