Problem 2 (Life-Cycle Costing)The following revenue and the cost data are for Round Manufacturing's toradial saws. The RM 200 is for the commercial market and the RM 800 is forindustrial customers. Both products are expected to have three-year life cycles.RM200Year 1Year 2Year 3Revenue CostsP 500,0001,000,000300,00060,00080,00020,000P2,500,000-0-P2,000,000Research and developmentPrototypesMarketing-0-50,000320,000 475,000120,000808,00060,000P 650,000 P 810,000-0-Distribution130,0001,000,00085,000ManufacturingCustomer service-0-IncomeP(960,000) Cost Planning for Product Life Cycle... 229RM800Year 1Year 2Year 3Revenue CostsResearch and developmentPrototypesMarketingDistributionManufacturingCustomer serviceP 900,0001,150,000550,000124,000170,00085,000P.P1,800,000P2,000,000-0--0-30,000200,000300,000600,00020,00010,000260,000410,000700,000-0-10.000IncomeP(1,179,000)P 650,000P 610,000Required:1. How would a product life-cycle income statement differ from this calendar-year income statement?2. Prepare a three-year life-cycle income statement for both products. Whichproduct appears to be more profitable?3. Prepare a schedule showing each cost category as a percentage of totalannual costs. Pay particular attention to the research and development andcustomer service categories. What do you think this indicates about theprofitability of each product over the three-year life cycle?

The income statement of the company will show the income and expenses of the company. The company's…

Cost Planning for Product Life Cycle... 229 RM800 Year 1 Year 2 Year 3 Revenue Costs Research and development Prototypes Marketing Distribution P 900,000 1,150,000 550,000 124,000 170,000 85,000 -0- P(1,179,000) P1,800,000 -0- 30,000 200,000 300,000 600,000 20,000 P 650,000 P2,000,000 -0- 10,000 260,000 410,000 700,000 10,000 P 610,000 Manufacturing Customer service Income Required: 1. How would a product life-cycle income statement differ from this calendar- year income statement? 2. Prepare a three-year life-cycle income statement for both products. Which product appears to be more profitable? 3. Prepare a schedule showing each cost category as a percentage of total annual costs. Pay particular attention to the research and development and customer service categories. What do you think this indicates about the profitability of each product over the three-year life cycle?

Cost Planning for Product Life Cycle... 229 RM800 Year 1 Year 2 Year 3 Revenue Costs Research and development Prototypes Marketing Distribution P 900,000 1,150,000 550,000 124,000 170,000 85,000 -0- P(1,179,000) P1,800,000 -0- 30,000 200,000 300,000 600,000 20,000 P 650,000 P2,000,000 -0- 10,000 260,000 410,000 700,000 10,000 P 610,000 Manufacturing Customer service Income Required: 1. How would a product life-cycle income statement differ from this calendar- year income statement? 2. Prepare a three-year life-cycle income statement for both products. Which product appears to be more profitable? 3. Prepare a schedule showing each cost category as a percentage of total annual costs. Pay particular attention to the research and development and customer service categories. What do you think this indicates about the profitability of each product over the three-year life cycle?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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The sales and cost data for two companies in the transportation industry are as follows: X Company Y Company Amount Percent Amount Percent Sales $ 136,000 100.00 $ 136,000 100.00 Variable costs 81,600 60.00 40,800 30.00 Contribution margin 54,400 40.00 95,200 70.00 Fixed costs 36,400 72,450 Operating income (πB) $ 18,000 $ 22,750 The annual breakeven point in sales dollars for X Company is: Multiple Choice $103,857. $91,000. $64,000. $111,769. $92,657.
8 The sales and cost data for two companies in the transportation industry are as follows: X Company Amount $ 132,000 79,200 Sales Variable costs Contribution margin Fixed costs Operating income (B) The annual breakeven point in sales dollars for X Company is: 52,800 36,300 $ 16,500 Percent 100.00 60.00 40.00 Y Company Amount $ 132,000 39,600 92,400 72,350 $ 20,050 Percent 100.00 30.00 70.00
Sale (50 000 units) Direct materials Direct wages Fixed production overhead Variable production overhead Administration overhead Selling and distribution overhead Profit/(loss) ii. (£000) iii. 350 200 200 50 180 120 (£000) 1,000 There are several proposals that have been gathered for consideration: i. Pay salesmen a commission of 10 percent of sales and thus increase sales to achieve break-even point. 1,100 (100) Reduce selling price by 10 percent, which would increase sales volume by 30 percent. Increase direct wage rates by 25 percent per unit, as part of a productivity deal. It is projected that this would increase production and sales unit by 20 percent, and advertising costs would also increase by £50,000. iv. Increase sales by having additional advertising of £300,000, with an increased selling price of 20 percent whilst setting a profit margin of 10 percent. Required: You need to evaluate the proposals by showing all the relevant workings and present this at the Board of…
Degree of Operating Leverage The following sales and cost data (in thousands) are for twocompanies in the transportation industry:Company A Company BAmount Percent of Sales Amount Percent of SalesSales $100,000 100% $100,000 100%Variable costs 50,000 50 30,000 30Contribution margin $ 50,000 50% $ 70,000 70%Fixed costs 15,000 40,000Operating profit $ 35,000 $ 30,000Required1. Calculate the degree of operating leverage (DOL) for each company. If sales increase from the presentlevel, which company benefits more? How do you know?2. Assume that sales rise 10% in the next year but that everything else remains constant. Calculate thepercentage increase in profit for each company. Are the results what you expected? Explain.3. In what sense is DOL a measure of risk?
LO20-1, LO20-4 For each of the six independent situations that follow, compute the missing amounts. EXERCISE 20.5 Using contribution margin per unit: a. Cost-Volume-Profit Operating Income Relationships Variable Contribution Fixed Sales Costs Margin per Unit Costs Units Sold (1) 2$ $120,000 $20 $ $25,000 4,000 (2) 180.000 45,000 30,000 5,000 (3) 600,000 30 150,000 90,000 b. Using the contribution margin ratio: Variable Contribution Operating Sales Costs Margin Ratio Fixed Costs Income (1) $900,000 $720,000 % $95,000 (2) 600,000 40% 75,000 (3) 30% 90,000 60,000
QUESTION 20 Total Per unit Sales Revenue (30,000 units) $750,000 $25 Variable Costs A $450,000 $15 Contribution Margin $300,000 Fixed Costs $150,000 Operating Income $150,000 Now assume that this company's selling price per unit and variable cost per unit stay the same while total fixed costs increases by $100,000 per year. This company's breakeven point will: O increase O decrease remain the same
jlp.9
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A company shows you the following data: Sales Costs: Variable costs Fixed costs Total costs Income (loss) Product Data O $20,000 decrease O $30,000 increase O $30,000 decrease O $20,000 increase F Product G Total $300,000 $210,000 $340,000 $850,000 $180,000 $180,000 $220,000 $580,000 50,000 50,000 40,000 140,000 $230,000 $230,000 $260,000 $720,000 $ 70,000 $(20,000) $ 80,000 $130,000 Management is considering the discontinuance of the manufacture and sale of Product G at the beginning of the current year. The discontinuance would have no effect on the total fixed costs and expenses or on the sales of Products F and H. How much would net income for the current year change if they discontinue Product G?