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    The Hadfield Company

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    (TCO E) The Hadfield Company was organized on January 1, 2001, to manufacture and sell a unique electronic part. The company's plant is highly automated with low variable and high fixed manufacturing costs. Operating results for the first three years of activity were as follows (absorption costing basis) Additional information about the company is as follows:
    2001 2002 2003
    SALES 500,000 400,000 500,000
    Cost of goods sold
    beginning inventory 0 0 140,000

    add: cost of goods manufactured 400,000 420,000 380,000
    goods available for sales 400,000 420,000 520,000
    less:ending inventory 0 140,000 95,000

    cost of goods sold 400,000 280,000 425,000
    gross margin 100,000 120,000 75,000
    less selling and admin expenses 85,000 75,000 85,000

    Net operating income (loss) 15,000 45,000 -10,000

    Additional information about the company is as follows:

    Variable manufacturing costs (direct labor, direct materials, and variable manufacturing overhead) total $2 per unit, and fixed manufacturing costs total $300,000 per year.
    Fixed manufacturing costs are applied to units of product on the basis of each year's production (i.e. a new fixed manufacturing overhead rate is computed each year.)
    The company uses a FIFO inventory flow.
    Variable selling and administrative expenses are $1 per unit sold.
    Fixed selling and administrative expenses total $70,000 per year.
    Production and sales information for the three years is as follows:

    Production in units 50,000 60,000 40,000
    sales in units 50,000 40,000 50,000

    Required
    Compute new operating income for each year under the variable cost approach

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    https://brainmass.com/business/accounting/the-hadfield-company-93637

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    2001 2002 2003
    SALES 500,000 400,000 500,000
    Cost of goods sold expense
    beginning inventory 0 0 40,000
    add: cost of goods manufactured
    Variable manufacturing costs ($2 x ...

    Solution Summary

    This solution is comprised of a detailed explanation to compute new operating income for each year under the variable cost approach.

    $2.19

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