Prepare a contribution margin income statement

Assignment Help Accounting Basics
Reference no: EM131643529

Problem - Agrigento Industries is a multiproduct company with several manufacturing plants. The Catania Plant manufactures and distributes two types of household cleaning and polishing compounds -- Regular and Heavy-Duty -- under the Clean-Bright label. The forecasted operating results for the first six months of 2005, when 100,000 cases of each are expected to be manufactured and sold, are presented in the following table:

Clean-Bright Compounds
Catania Plant
Forecasted Results of Operations
For the Six-Month Period Ending June 30, 2005

(all dollar amounts are in thousands)

 

Regular

Heavy-Duty

Total

Sales Revenue

$2,000

$3,000

$5,000

Cost of Sales

(1,600)

(1,900)

(3,500)

Gross Profit

$400

$1,100

$1,500

Nonmanufacturing Costs:

 

 

 

Variable

(400)

(700)

(1,100)

Fixed *

(240)

(360)

(600)

Total Nonmanufacturing Costs

(640)

(1,060)

(1,700)

Income (Loss) before Taxes

$ (240)

$ 40

$ (200)

*The fixed nonmanufacturing costs are allocated between the two products on the basis of dollar sales volume on these internal reports. None of these could be avoided by discontinuing either product.

The Regular compound is projected to sell for $20 a case and the Heavy-Duty compound is projected to sell for $30 a case during the first six months of 2005. The manufacturing costs by case of product are summarized in the schedule below. Each product is manufactured on a separate production line. Annual manufacturing capacity is 400,000 cases of each product. However, the plant is capable of producing either 500,000 cases of Regular compound or 700,000 cases of Heavy-Duty compound by retooling the individual assembly lines.

 

Manufacturing Cost

(per Case)

 

Regular

Heavy-Duty

Direct Materials

$5.00

$8.00

Direct Labor

4.00

5.00

Variable Manufacturing Overhead

1.00

2.00

Fixed Manufacturing Overhead**

6.00

4.00

Total Manufacturing Costs

$ 16.00

$19.00

Variable Nonmanufacturing Costs

$ 4.00

$7.00

**$300,000 of the fixed manufacturing costs of Regular and $100,000 of the fixed manufacturing costs of Heavy-Duty could be avoided during the six month period if the respective product line were discontinued. Fixed manufacturing overhead is assigned on a per unit of production bases.

Required:

1. Prepare a contribution margin income statement, showing the projected income for each product line, and for the company as a whole, for the first six months of 2005 based on the Forecasted Results of Operations presented on the previous page.

2. Determine the break-even number of cases for each product line and the total revenue necessary to break-even during the first six months of 2005 if the product mix is unchanged.

3. Determine the break-even number of cases (and sales revenue) if only one product line is sold during the first six months of 2005. Do this separately for both the Regular and Heavy-Duty lines.

4. If Agrigento received a one-time order for 50,000 units of Regular compound during the six-month period, what is the lowest price that it could accept without reducing its income? Assume that no other sales would be affected.

5. If a customer wanted to purchase $36,000 worth of product (either Regular or Heavy-Duty, the customer is indifferent), what combination of cases of each would maximize Agrigento's profit?

Reference no: EM131643529

Questions Cloud

Identify and list the various costs-fixed and variable : Summarize company and explain CVP and Capital budgeting. Identify and list various costs-fixed and variable, direct and indirect-required to execute project.
Strongly tilted towards unique individual talent : Why was the conventional wisdom regarding the nature of achievement and capability so strongly tilted towards unique individual talent?
Company to ensure positive organizational culture : What do you believe a leader would do in Company to ensure positive organizational culture?
Important to building trust in a healthcare organization : Identify 3 leadership and management skills you think are important to building trust in a healthcare organization.
Prepare a contribution margin income statement : Prepare a contribution margin income statement, showing the projected income for each product line, and for the company as a whole
Shapes the republican party : Is the same political coalition that formed Ronald Reagan's republican party the same that shapes the republican party today?
Compute the year 3 budgeted cost per driver unit of mixing : Compute the Year 3 budgeted cost per driver unit of (a) mixing; (b) cooking; (c) cooling; (d) creaming/icing; and (e) packaging
Discuss focusing primarily on the intervention : Locate a nursing study that examines the effects of an intervention. Provide a summary of the study, focusing primarily on the intervention
Eveluate the companys weighted average cost of capital : Eveluate the company's weighted average cost of capital. Use the dividend discount model. Show calculations in Microsoft Word.

Reviews

Write a Review

Accounting Basics Questions & Answers

  How much control does fed have over this longer real rate

Hubbard argues that the Fed can control the Fed funds rate, but the interest rate that is important for the economy is a longer-term real rate of interest.   How much control does the Fed have over this longer real rate?

  Coures:- fundamental accounting principles

Coures:- Fundamental Accounting Principles: - Explain the goals and uses of special journals.

  Accounting problems

Accounting problems,  Draw a detailed timeline incorporating the dividends, calculate    the exact Payback Period  b)   the discounted Payback Period. the IRR,  the NPV, the Profitability Index.

  Write a report on internal controls

Write a report on Internal Controls

  Prepare the bank reconciliation for company

Prepare the bank reconciliation for company.

  Cost-benefit analysis

Create a cost-benefit analysis to evaluate the project

  Theory of interest

Theory of Interest: NPV, IRR, Nominal and Real, Amortization, Sinking Fund, TWRR, DWRR

  Liquidity and profitability

Distinguish between liquidity and profitability.

  What is the expected risk premium on the portfolio

Your Corp, Inc. has a corporate tax rate of 35%. Please calculate their after tax cost of debt expressed as a percentage. Your Corp, Inc. has several outstanding bond issues all of which require semiannual interest payments.

  Simple interest and compound interest

Simple Interest, Compound interest, discount rate, force of interest, AV, PV

  Capm and venture capital

CAPM and Venture Capital

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd