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Problem 6 (Pricing) bookkeeper presented the income statement showing large loss for th second year of operations. The loss of P70,000 was expected for the fire year when the company operated at low level. However, the management of Neilsen's Woodworking was shocked to discover a loss of P160,000 for the second year. The president of the company could not understand how they could be operating at near-capacity and losing money. The company was consistently short of cash, a common problem when operations are expanding. From your preliminary examinations, you found very poor accounting records. You are satisfied that the data in the financial statements are correct and that there is no significant fraud. The company manufactures a line of kitchen cabinets. Because of the lack of detailed records, it is impossible to develop data about the cost of the product. The selling price was set by the president to undersell competition. presented below. Candensed income statements are NEILSEN'S WOODWORKING Income Statement 20X3 and 20X4 20X3 20X4 Sales (P40 each) Operating expenses: Beginning inventory of materials Operating expense Total P 100,000 P 400,000 P. 190,000 P 190,000 20.000 P 170,000 P (70.000) P 20,000 570,000 P 590,000 30,000 P 560,000 P(160,000) Ending inventory of materials Expenses for the year Net loss

Problem 6 (Pricing) bookkeeper presented the income statement showing large loss for th second year of operations. The loss of P70,000 was expected for the fire year when the company operated at low level. However, the management of Neilsen's Woodworking was shocked to discover a loss of P160,000 for the second year. The president of the company could not understand how they could be operating at near-capacity and losing money. The company was consistently short of cash, a common problem when operations are expanding. From your preliminary examinations, you found very poor accounting records. You are satisfied that the data in the financial statements are correct and that there is no significant fraud. The company manufactures a line of kitchen cabinets. Because of the lack of detailed records, it is impossible to develop data about the cost of the product. The selling price was set by the president to undersell competition. presented below. Candensed income statements are NEILSEN'S WOODWORKING Income Statement 20X3 and 20X4 20X3 20X4 Sales (P40 each) Operating expenses: Beginning inventory of materials Operating expense Total P 100,000 P 400,000 P. 190,000 P 190,000 20.000 P 170,000 P (70.000) P 20,000 570,000 P 590,000 30,000 P 560,000 P(160,000) Ending inventory of materials Expenses for the year Net loss

FINANCIAL ACCOUNTING
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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What price must be set to earn a profit of 8% of sales?

Neilsen's Woodworking Company came to you for assistance when . bookkeeper presented the income statement showing large loss for th second year of operations. The loss of P70,000 was expected for the fire year when the company operated at low level. However, the management of Neilsen's Woodworking was shocked to discover a loss of P160,000 for the second year. Problem 6 (Pricing) The president of the company could not understand how they could he operating at near-capacity and losing money. The company was consistently short of cash, a common problem when operations are expanding. From your preliminary examinations, you found very poor accounting records. You are satisfied that the data in the financial statements are correct and that there is no significant fraud. The company manufactures a line of kitchen cabinets. Because of the lack of detailed records, it is impossible to develop data about the cost of the product. The selling price was set by the president to undersell competition. Condensed income statements are presented below. NEILSEN'S WOODWORKING Income Statement 20X3 and 20X4 20X3 20X4 P 100.000 Sales (P40 each) Operating expenses: Beginning inventory of materials Operating expense Total P 400,000 P. 190.000 P 190,000 20.000 P 170.000 P (70,000) P 20,000 570,000 P 590,000 30.000 P 560,000 P(160.000) Ending inventory of materials Expenses for the year Net loss
Transcribed Image Text:Neilsen's Woodworking Company came to you for assistance when . bookkeeper presented the income statement showing large loss for th second year of operations. The loss of P70,000 was expected for the fire year when the company operated at low level. However, the management of Neilsen's Woodworking was shocked to discover a loss of P160,000 for the second year. Problem 6 (Pricing) The president of the company could not understand how they could he operating at near-capacity and losing money. The company was consistently short of cash, a common problem when operations are expanding. From your preliminary examinations, you found very poor accounting records. You are satisfied that the data in the financial statements are correct and that there is no significant fraud. The company manufactures a line of kitchen cabinets. Because of the lack of detailed records, it is impossible to develop data about the cost of the product. The selling price was set by the president to undersell competition. Condensed income statements are presented below. NEILSEN'S WOODWORKING Income Statement 20X3 and 20X4 20X3 20X4 P 100.000 Sales (P40 each) Operating expenses: Beginning inventory of materials Operating expense Total P 400,000 P. 190.000 P 190,000 20.000 P 170.000 P (70,000) P 20,000 570,000 P 590,000 30.000 P 560,000 P(160.000) Ending inventory of materials Expenses for the year Net loss
Relevant Costs for Non-Routine Decision Making 317 Other data: Units produced 2,500 units 10,000 units Units sold 2,500 units 10,000 units Assets invested in business P100,000 P100,000 Capacity in units 12,000 12,000 Required: A. Why did the company lose P160,000 in the second year? How much would the company lose if they operated at capacity? B. What price must be set to earn a profit of 8% of sales? C. What price must be set to earn a contribution margin ratio of 30%? D. What price must be set to earn 15% on the assets invested in the business?
Transcribed Image Text:Relevant Costs for Non-Routine Decision Making 317 Other data: Units produced 2,500 units 10,000 units Units sold 2,500 units 10,000 units Assets invested in business P100,000 P100,000 Capacity in units 12,000 12,000 Required: A. Why did the company lose P160,000 in the second year? How much would the company lose if they operated at capacity? B. What price must be set to earn a profit of 8% of sales? C. What price must be set to earn a contribution margin ratio of 30%? D. What price must be set to earn 15% on the assets invested in the business?
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