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
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
What price must be set to earn a profit of 8% of sales?
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
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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