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Sting Corporation: Operating income

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Problem posted:

Problem 2
Following a strategy of product differentiation, Sting Corporation makes a high-end computer monitor, CM7. Sting Corporation presents the following data for the years 2012 and 2013:

2012 2013
Units of CM 7 produced and sold 5,000 5,500
Selling price \$400 \$440
Direct materials (pounds) 15,000 15,375
Direct materials costs per pound \$40 \$44
Manufacturing capacity for CM7 (units) 10,000 10,000
Conversion costs \$1,000,000 \$1,100,000
Conversion costs per unit of capacity \$100 \$110
Selling and customer-service capacity (customers) 60 58
Total selling and customer-service costs \$360,000 \$362,500
Selling and customer-service capacity cost per customer \$6,000 \$6,250

Sting Corporation produces no defective units but it wants to reduce direct materials usage per unit of CM7 in 2013. Manufacturing conversion costs in each year depend on production capacity defined in terms of CM7 units that can be produced. Selling and customer-service costs depend on the number of customers that the customer and service functions are designed to support. Sting Corporation has 100 customers in 2012 and 115 customers in 2013. The industry market size for high-end computer monitors increased 5% from 2012 to 2013.

Required:
a. What is operating income for 2012?
b. What is operating income in 2013?

Solution Preview

Tutorial guide:

This problem is a bit misleading because it keeps giving you "per unit" costs for total costs. For example, it gives you total selling and customer-service costs ...

Solution Summary

See computation in excel, attached.

\$2.19

Kray Inc., which produces a single product, has provided the following data for its most recent month of operations:

I need assistance with the following study questions.

________________________________________

Kray Inc., which produces a single product, has provided the following data for its most recent month of operations:
Number of units produced 2,700
Variable costs per unit:
Direct materials \$84
Direct labor \$10
Variable selling and administrative expense \$5
Fixed costs:
Fixed selling and administrative expense \$156,000

There were no beginning or ending inventories. The unit product cost under variable costing was:

(a) \$94
(b) \$114
(c) \$101
(d) \$119

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Blake Corporation, which produces a single product, has provided the following absorption costing income statement for the month of June:

Blake Corporation
Income Statement
For the month ended June 30

Sales (9,700 units) \$349,200
Cost of goods sold:
Beginning inventory \$ 8,500
Add cost of goods manufactured 101,700
Goods available for sale 110,200
Less ending Inventory 20,100
Cost of goods sold 90,100
Gross margin 259,100
Fixed \$ 80,000
Variable 19,400 99,400
Net operating income \$ 159,700

During June, the company's variable production costs were \$10 per unit and its fixed manufacturing overhead totaled \$70,000. A total of 8,000 units were produced during June and the company had 850 units in the beginning inventory. The company uses the LIFO method to value inventories.

The break-even point in units for the month under variable costing would be (rounded):

(a) 6,250 units
(b) 6,402 units
(c) 6,100 units
(d) 7,255 units

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During its first year of operations, Carlos Manufacturing Company incurred the following costs to produce 9,400 units of its product:

Direct materials \$6 per unit
Direct labor \$3 per unit
Variable manufacturing overhead \$12 per unit
Fixed manufacturing overhead \$483,630 in total

The company also incurred the following costs in the sale of 6,900 units of product during its first year:

Variable selling and administrative \$3 per unit
Fixed selling and administrative \$59,000 in total

Assume that direct labor is a variable cost.

If Carlos' absorption costing net operating income for this first year is \$117,425, what would its variable costing net operating income be for this first year?

(a) \$86,000
(b) \$-11,200
(c) \$146,250
(d) \$104,125

Dearne Company, which has only one product, has provided the following data concerning its most recent month of operations:
Selling price \$60

Units in beginning inventory 0
Units produced 6,000
Units sold 4,600
Units in ending inventory 1,400

Variable costs per unit:
Direct materials \$21
Direct labor \$14

Fixed costs:

What is the total period cost for the month under the absorption costing approach?

(a) \$101,800
(b) \$114,300
(c) \$100,300
(d) \$110,000

________________________________________

Decaprio Inc. produces and sells a single product. The company has provided its contribution format income statement for June.

If the company sells 9,200 units, its net operating income should be closest to:

(a) \$25,900
(b) \$36,700
(c) \$27,077
(d) \$49,900

________________________________________

The margin of safety in the Flaherty Company is \$24,000. If the company's sales are \$120,000 and its variable expenses are \$80,000, its fixed expenses must be:

(a) \$8,000
(b) \$32,000
(c) \$24,000
(d) \$16,000

The following data are available for the Phelps Company for a recent month:

The break-even sales for the month for the company are:

(a) \$203,000
(b) \$137,500
(c) \$148,000
(d) \$91,667

________________________________________

Newham Corporation produces and sells two products. In the most recent month, Product R10L had sales of \$28,000 and variable expenses of \$6,440. Product X96N had sales of \$22,000 and variable expenses of \$7,560. And the fixed expenses of the entire company were \$32,710. The break-even point for the entire company is closest to:

(a) \$32,710
(b) \$46,710
(c) \$17,290
(d) \$45,431

________________________________________

Taylor, Inc. produces only two products, Acdom and Belnom. These account for 60% and 40% of the total sales dollars of Taylor, respectively. The unit variable expense as a percentage of the selling price is 60% for Acdom and 85% for Belnom. Total fixed expenses are \$150,000. There are no other costs.

Assuming that the total fixed expenses of Taylor increase by 30% and the sales mix remains constant, what amount of sales dollars would be necessary to generate a net operating income of \$9,000?

(a) \$204,000
(b) \$464,000
(c) \$659,000
(d) \$680,000

________________________________________

Taylor, Inc. produces only two products, Acdom and Belnom. These account for 60% and 40% of the total sales dollars of Taylor, respectively. The unit variable expense as a percentage of the selling price is 60% for Acdom and 85% for Belnom. Total fixed expenses are \$150,000. There are no other costs.

What is Taylor's break-even point in sales dollars?

(a) \$214,286
(b) \$300,000
(c) \$150,000
(d) \$500,000

________________________________________

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