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Chapter 16: Q23E_1 (page 892)

Calculating income and cost per service for a service company

Buddy Grooming provides grooming services for pets. In April, the company earned \(16,300 in revenues and incurred the following operating costs to groom 660 dogs:

Wages Expense \) 4,061

Grooming Supplies Expense 1,675

Building Rent Expense 900

Utilities Expense 305

Depreciation Expense—Equipment 55

Requirements 1. What is Buddy’s operating income for April?

Short Answer

Expert verified

The net operating income for the month of April is $9,304.

Step by step solution

01

Step-by-Step SolutionStep 1: Definition of Income Statement

The income statement is defined as the financial statement which shows the revenues and expenses of a business incurred during the year.

02

Preparation of income statement


Income Statement

Amount ($)

Amount ($)

Revenue

Service Revenue

$16,300

Expenses

Building Rent Expense

$900

Depreciation Expense - Equipment

$55

Grooming Supplies Expense

$1,675

Utilities Expense

$305

Wages Expense

$4,061

Total Expense

$6,996

Operating income

$9,304

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Most popular questions from this chapter

Applying ethical standards

Ava Borzi is the new controller for Halo Software, Inc. which develops and sells education software. Shortly before the December 31 fiscal year-end, Jeremy Busch, the company president, asks Borzi how things look for the year-end numbers. He is not happy to learn that earnings growth may be below 9% for the first time in the company’s five-year history. Busch explains that financial analysts have again predicted a 9% earnings growth for the company and that he does not intend to disappoint them. He suggests that Borzi talk to the assistant controller, who can explain how the previous controller dealt with such situations. The assistant controller suggests the following strategies:

a. Persuade suppliers to postpone billing \(18,000 in invoices until January 1.

b. Record as sales \)120,000 in certain software awaiting sale that is held in a public warehouse.

c. Delay the year-end closing a few days into January of the next year so that some of the next year’s sales are included in this year’s sales.

d. Reduce the estimated Bad Debts Expense from 3% of Sales Revenue to 2%, given the company’s continued strong performance.

e. Postpone routine monthly maintenance expenditures from December to January.

Requirements

1. Which of these suggested strategies are inconsistent with IMA standards?

2. How might these inconsistencies affect the company’s creditors and stockholders?

3. What should Borzi do if Busch insists that she follow all of these suggestions?

In 100 words or fewer, explain the difference between product costs and period costs. In your explanation, explain the inventory accounts of a manufacturer.

Making ethical decisions

Sue Peters is the controller at Vroom, a car dealership. Dale Miller recently has been hired as the bookkeeper. Dale wanted to attend a class in Excel spreadsheets, so Sue temporarily took over Dale’s duties, including overseeing a fund used for gas purchases before test drives. Sue found a shortage in the fund and confronted Dale when he returned to work. Dale admitted that he occasionally uses the fund to pay for his own gas. Sue estimated the shortage at $450.

Requirements 2. Would you change your answer if Sue Peters was the one recently hired as controller and Dale Miller was a well-liked, long time employee who indicated he always eventually repaid the fund?

Identify each cost as a period cost or a product cost. If it is a product cost, further indicate if the cost is direct materials, direct labor, or manufacturing overhead. Then determine if the product cost is a prime cost and/or a conversion cost.

10.Salary of the factory maintenance supervisor

Question:Preparing an income statement and calculating unit cost for a service company

The Windshield Doctors repair chips in car windshields. The company incurred the following operating costs for the month of March 2018:

Salaries and wages \( 12,000

Windshield repair materials 4,600

Depreciation on truck 300

Depreciation on building and equipment 1,200

Supplies used 300

Utilities 460

The Windshield Doctors earned \)23,000 in service revenues for the month of March by repairing 500 windshields. All costs shown are considered to be directly related to the repair service.

Requirements

1. Prepare an income statement for the month of March.

2. Compute the cost per unit of repairing one windshield.

3. The manager of Windshield Doctors must keep unit operating cost below $50 per windshield in order to get his bonus. Did he meet the goal?
See all solutions

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