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Mr. Rosen is the manager of a division of Jokkmok Industries. He is one of several managers being considered for the position of CEO, as the current CEO is retiring in a year.
All divisions use standard absorption costing. The division has the capacity to produce 50,000 units a quarter and quarterly fixed overhead amounts to $600,000. Mr. Rosen has been looking at the report for the first three months of the year and is not happy with the results.
Division Income Statement
For the Quarter Ending March 31, 2013
Production: 25,000 units
Sales (25,000 units)
$2,500,000
Cost of goods sold
1,800,000
Gross profit
$700,000
Selling & general expenses
350,000
Net income
$350,000
The sales forecast for the second quarter is 25,000 units. Mr. Rosen had budgeted second quarter production at 25,000 units but changes it to 50,000 units, which is total capacity for a quarter. The sales forecasts for each of the last two quarters of the year remain at 25,000 units. Actual fixed costs incurred remain constant in total and variable costs remain constant on per unit basis.
Computations:
Discussion:
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