Problem 6, page 316- Neilsen's Woodworking Company (Pricing)Requirement: What price must be set to earn a profit of 8% of sales if they entity plans tooperate at capacity?Problem 6 (Pricing)Neilsen's Woodworking Company came to you for assistance when thebookkeeper presented the income statement showing large loss for thesecond year of operations: The loss of P70,000 was expected for the firstyear when the company operated at low level. However, the management ofNeilsen's Woodworking was shocked to discover a loss of P160,000 for thesecond year.The president of the company could not understand how they could beoperating at near-capacity and losing money. The company was consistentlyshort of cash, a common problem when operations are expanding.From your preliminary examinations, you found very poor accountingrecords. You are satisfied that the data in the financial statements are correctand that there is no significant fraud. The company manufactures a line ofkitchen cabinets. Because of the lack of detailed records, it is impossible todevelop data about the cost of the prodúct. The selling price was set by uhepresident to undersell competition. Condensed income statements arepresented below.NEILSEN'S WOODWORKINGIncome Statement20X3 and 20X420X420X3P 100,000Sales (P40 each)Operating expenses:Beginning inventory of materialsOperating expenseP 400.000P.190,000P. 190,00020.000P 170,000P(70,000)P 20,000570,000P 590,00030,000P 560,000P(160.000)TotalEnding inventory of materialsExpenses for the yearNet loss 317Other data:Units produced2,500 units10,000 units2,500 units10,000 unitsUnits soldP100,000Assets invested in businessP100,00012,000Capacity in units12,000SOLUTION & ANSWER:

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Requirement: What price must be set to earn a profit of 8% of sales if they entity plans to operate at capacity? Problem 6 (Pricing) Neilsen's Woodworking Company came to you for assistance when the bookkeeper presented the income statement showing large loss for the second year of operations: The loss of P70,000 was expected for the first 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

Requirement: What price must be set to earn a profit of 8% of sales if they entity plans to operate at capacity? Problem 6 (Pricing) Neilsen's Woodworking Company came to you for assistance when the bookkeeper presented the income statement showing large loss for the second year of operations: The loss of P70,000 was expected for the first 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

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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ss. Subject:- Accounting
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Washington Company has two divisions: the Adams Division and the Jefferson Division. The following information pertains to last year's results: Adams Division Jefferson Division Net (after-tax) income $653,400 $330,750 Total capital employed 4,560,000 3,705,000 In addition, Washington Company's top management has set a minimum acceptable rate of return equal to 7%. Required: Enter negative values as negative numbers. 1. Calculate the residual income for the Adams Division. 2. Calculate the residual income for the Jefferson Division.