COST ACCOUNTING W/CONNECT
6th Edition
ISBN: 9781264022021
Author: LANEN
Publisher: MCG
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Textbook Question
Chapter 4, Problem 64P
Agnew Manufacturing produces and sells three models of a single product, Standard, Superior, and DeLuxe, in a local market and in a regional market. At the end of the first quarter of the current year, the following income statement (in thousands of dollars) has been prepared:
Management has expressed special concern with the regional market because of the extremely poor return on sales. This market was entered a year ago because of excess capacity. It was originally believed that the return on sales would improve with time, but after a year, no noticeable improvement can be seen from the results as reported in the preceding quarterly statement.
In attempting to decide whether to eliminate the regional market, the following information has been gathered:
All administrative costs and fixed
Required
- a. Assuming there are no alternative uses for Agnew’s present capacity, would you recommend dropping the regional market? Why or why not?
- b. Prepare the quarterly income statement showing contribution margins by products. Do not allocate fixed costs to products.
- c. It is believed that a new model can be ready for sale next year if Agnew decides to go ahead with continued research. The new product would replace DeLuxe and can be produced by simply converting equipment presently used in producing the DeLuxe model. This conversion will increase fixed costs by $60,000 per quarter. What must be the minimum contribution margin per quarter for the new model to make the changeover financially feasible?
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Millard Corporation is a wholesale distributor of office products. It purchases office products from manufacturers and distributes them
in the West, Central, and East regions. Each of these regions is about the same size and each has its own manager and sales staff.
The company has been experiencing losses for many months. In an effort to improve performance, management has requested that
the monthly income statement be segmented by sales region. The company's first effort at preparing a segmented income statement
for May is given below.
Sales
Regional expenses (traceable):
Cost of goods sold
Advertising
Salaries
Utilities
Depreciation
Shipping expense
Total regional expenses
Regional income (loss) before corporate expenses
Corporate expenses:
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General administrative expense
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Total variable expenses
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Millard Corporation is a wholesale distributor of office products. It purchases office products from manufacturers and distributes them in the West, Central, and East regions. Each of these regions is about the same size and each has its own manager and sales staff.
The company has been experiencing losses for many months. In an effort to improve performance, management has requested that the monthly income statement be segmented by sales region. The company’s first effort at preparing a segmented income statement for May is given below.
Sales Region
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107,000
Utilities
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16,100
13,600
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Chapter 4 Solutions
COST ACCOUNTING W/CONNECT
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