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    Changes in operating income.

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    Calculate the growth, price-recovery, and productivity components of changes in operating income between 2004 and 2005.
    Create schedules for Revenue and Cost Effects of Growth, Revenue and Cost Effects of Price Recovery, Cost Effects of Productivity, and a Strategic Analysis of Profitability.

    Originial Data
    2004 2005
    1 Pieces of clothing purchased and sold 40,000 40,000
    2 Average selling price $60 $59
    3 Average cost per piece of clothing $40 $41
    4 Selling and customer-service capacity 51,000 43,000
    5 Selling and customer-service costs $357,000 $296,700
    6 Selling and cust svc cap costs per cust $7.00 $6.90
    7 Purchasing and administrative capacity 980 850
    8 Purchasing and administrative costs $245,000 $204,000
    9 Purch and admin cap costs per design $250 $240

    Income Statement
    Halsey Company
    For the Year Ending December 31, 2005

    2004 2005
    Revenue 2,400,000 2,360,000

    Direct materials costs 1,600,000 1,640,000
    Selling and customer-service costs 357,000 296,700
    Purchasing and adminstrative costs 245,000 204,000
    Total costs 2,202,000 2,140,700

    Operating Income 198,000 219,300

    21,300
    Increase in operating income

    Revenue and Cost Effects of Growth

    Revenue effect of growth 0
    Direct materials costs 40,000
    Selling and customer service costs 0
    Purchasing and administrative costs -21,075
    Total effect of growth 18,925

    Revenue and Cost Effects of Price Recovery

    Revenue effect of price recovery -40,000
    Direct materials costs 40,000
    Selling and customer service costs -5,100
    Purchasing and administrative costs -8,641
    Total effect of price recovery -13,741

    Cost Effect of Productivity

    Revenue effect of productivity 0
    Direct materials costs 0
    Selling and customer service costs -308,900
    Purchasing and administrative costs -234,350
    Total effect of price productivity -543,250

    Additional information for the problem:
    Total selling and customer service costs depend on the number of customers that the company has created capacity to support, not the actual number of customers. Total purchasing and administrative costs depend on purchasing and admin capacity that the company has created (in terms of the number of distinct designs that can be purchased and adminstered.) Purchasing and administrative costs do not depend on the actual number of distinct clothing designs purchased. The company purchased 930 designs in 2004 and 820 designs in 2005.

    This problem is taken from Cost Accounting, 11th edition, Horngren. Chp 13, problem 13-30.

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    The problem is this:
    Calculate the growth, price-recovery, and productivity components of changes in operating income between 2004 and 2005.

    Additional information for the problem:
    Total selling and customer service costs depend on the number of customers that the company has created capacity to support, not the actual number of customers. Total purchasing and administrative costs depend on purchasing and admin capacity that the company has created (in terms of the number of distinct designs that can be purchased and administered.) Purchasing and administrative costs do not depend on the actual number of distinct clothing designs purchased. The company purchased 930 designs in 2004 and 820 designs in 2005.

    This problem is taken from Cost Accounting, 11th edition, Horngren. Chp 13, problem 13-30.

    2004 2005
    1 Pieces of clothing purchased and sold 40,000 40,000
    2 Average selling price $60 $59
    3 Average cost per piece of clothing $40 $41
    4 Selling and customer-service capacity 51,000 43,000
    5 Selling and customer-service costs $357,000 $296,700
    6 Selling and cust svc cap costs per cust $7.00 $6.90
    7 Purchasing and administrative capacity 980 850
    8 Purchasing and administrative costs $245,000 $204,000
    9 Purch and admin cap costs per ...

    Solution Summary

    Calculates the growth, price-recovery, and productivity components of changes in operating income.

    $2.19

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