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Sandra's Kreations just completed its best year, generating income of $28,000 from selling decadent wedding cakes and desserts. For a business that is only two years old and run from Sandra's own kitchen, this is quite an accomplishment. She has been asked to provide a special-event cake for one event per month at the local convention center, but at a reduced price of $430. While this is mostly fantastic news, Sandra realizes that she is already working at maximum capacity. If she commits to these events, she will need to either find additional capacity or reduce her regular wedding cake sales. The following income statement shows Sandra's results from last year. Sales COGS Gross margin Operating expenses Operating income $200,000 131,000 69,000 41,000 $28,000

Sandra's Kreations just completed its best year, generating income of $28,000 from selling decadent wedding cakes and desserts. For a business that is only two years old and run from Sandra's own kitchen, this is quite an accomplishment. She has been asked to provide a special-event cake for one event per month at the local convention center, but at a reduced price of $430. While this is mostly fantastic news, Sandra realizes that she is already working at maximum capacity. If she commits to these events, she will need to either find additional capacity or reduce her regular wedding cake sales. The following income statement shows Sandra's results from last year. Sales COGS Gross margin Operating expenses Operating income $200,000 131,000 69,000 41,000 $28,000

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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A8

(a) To keep her existing sales volume and take on the new convention center events, Sandra would need to hire additional employees who would "invade" her home while she and her family sleep. Hiring dependable night-shift workers would increase her variable product costs per unit by 10%. If she maintains her existing sales and takes on the new events under these circumstances, how much total operating income will she show for next year? Total operating income $
Transcribed Image Text:(a) To keep her existing sales volume and take on the new convention center events, Sandra would need to hire additional employees who would "invade" her home while she and her family sleep. Hiring dependable night-shift workers would increase her variable product costs per unit by 10%. If she maintains her existing sales and takes on the new events under these circumstances, how much total operating income will she show for next year? Total operating income $
Sandra's Kreations just completed its best year, generating income of $28,000 from selling decadent wedding cakes and desserts. For a business that is only two years old and run from Sandra's own kitchen, this is quite an accomplishment. She has been asked to provide a special-event cake for one event per month at the local convention center, but at a reduced price of $430. While this is mostly fantastic news, Sandra realizes that she is already working at maximum capacity. If she commits to these events, she will need to either find additional capacity or reduce her regular wedding cake sales. The following income statement shows Sandra's results from last year. Sales COGS Gross margin Operating expenses Operating income $200,000 131,000 69,000 41,000 $28,000 Sandra's average selling price is $1,000 per cake; fixed-MOH costs are $67,000 and are included in COGS. All other product costs vary based on volume. Average variable operating expenses are $106 per cake; remaining operating expenses are fixed. After thinking about it further, she realizes she'll avoid the variable operating expenses on the special-event cakes.
Transcribed Image Text:Sandra's Kreations just completed its best year, generating income of $28,000 from selling decadent wedding cakes and desserts. For a business that is only two years old and run from Sandra's own kitchen, this is quite an accomplishment. She has been asked to provide a special-event cake for one event per month at the local convention center, but at a reduced price of $430. While this is mostly fantastic news, Sandra realizes that she is already working at maximum capacity. If she commits to these events, she will need to either find additional capacity or reduce her regular wedding cake sales. The following income statement shows Sandra's results from last year. Sales COGS Gross margin Operating expenses Operating income $200,000 131,000 69,000 41,000 $28,000 Sandra's average selling price is $1,000 per cake; fixed-MOH costs are $67,000 and are included in COGS. All other product costs vary based on volume. Average variable operating expenses are $106 per cake; remaining operating expenses are fixed. After thinking about it further, she realizes she'll avoid the variable operating expenses on the special-event cakes.
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