Prepare a segmented variable costing income statement

Reference no: EM132093415

Case: Accounting Cost Systems and Cost Behaviors

Assignment Overview: Preparation of an Income Statement for The Serious Reader Company

The first case of this course provides an opportunity to prepare a segmented variable costing (contribution margin, behavioral) income statement and analyze the information. This is a very small company and the information may seem simplistic at first glance. Don't forget that numbers and hands-on practice best illustrate many basic accounting concepts.

The Serious Reader Company is a small online retailer operating out of a garage apartment. The owner buys books at garage sales, thrift shops, library sales, and whenever an opportunity arises. The company classifies all books into five categories based on cost of acquisition and estimated sales price. See below for details about books purchased and sold during the last year (20XX).

	Price Categories
	A	B	C	D	E
Units Sold	4,000	1,000	500	400	400
Unites Purchased	6,000	1,200	1,000	1,000	1,000
Resale Price	$4.00	$12.00	$20.00	$45.00	$60.00
Cost	$0.50	$4.00	$10.00	$20.00	$20.00

In addition to purchasing inventory (used books), the company incurs some operating expenses.

Variable Operating Expenses
Shipping per book	$1.50

Common fixed expenses
Internet-related costs	$10,000
Travel, etc.	$4,000
Advertising	$1,000
Other overhead	$5,000

Case Assignment

Required: Computations (use Excel)

• Prepare a segmented variable costing (behavioral) income statement for the company in good format.

• Prepare a second variable costing statement assuming 90% of all the books in each category purchased were actually sold.

• Prepare a third variable costing statement assuming that the price is increased by 50% for all five categories (use original sales information).

• The owner enjoys the used-book business. Any suggestions as how to turn this into a full-time business venture so the owner can quit his other job? Prepare another income statement to support your idea.

Memo (use Word)

Interpret the results from the computations and explain how the information is useful. Write a 4- or 5-paragraph memo to the owner of the business. Start with an introduction and end with a recommendation. Each of the four or five paragraphs should have a heading.

Short essay to comment on the questions below (use Word). Start with an introduction and end with a summary or conclusion. Use headings. Maximum length of two pages.

• Why do many organizations make the effort to prepare a different type of income statement for internal purposes?

• Variable costing is not just about preparing income statements. Provide at least three scenarios in which understanding how costs behave is useful.

Assignment Expectations: Each submission should include two files: (1) An Excel file; and (2) A Word document. The Word document shows the memo first and short essay last. Assume a knowledgeable business audience and use required format and length. Individuals in business are busy and want information presented in an organized and concise manner.

Reference no: EM132093415

Questions Cloud

Demonstrate how bayes theorem works : It would be nice if you could explain mathematical notations used in the equation of the Bayes' Theorem.

The idea of perceived organizational support : The idea of perceived organizational support is that if treated well, employees are motivated by.

Find the firm cash flow from assets : If firm's net capital spending for 2013 was $480,000, and firm increased its net working capital investment by $30,000, find firm's 2013 cash flow from assets

Computing the optimal order quantity : What is the optimal order quantity? Show all total costs calculations and explain your answer.

Prepare a segmented variable costing income statement : Prepare a segmented variable costing (behavioral) income statement for the company in good format. Prepare a second variable costing statement assuming 90%.

How an employees demographic characteristics : Assistance determining the X and Y variables. The questions states "Suppose you are interested in understanding how an employees demographic characteristics

What is the max dividend payout rate : ABC Store plans to multiply at an annual rate of at least 15%. 23% will be the return on equity. What is the max dividend payout rate ABC store can maintain

Network differ from customer service provided by communities : How does customer service on social networks differ from customer service provided by communities?

Confidence interval about the population mean difference : ?Construct a 99% confidence interval about the population mean difference. Compute the difference as device A minus device B.

User Account

All Pages