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Chapter 21: Q10SE (page 1168)

Analyzing profitability

Camden Company has divided its business into segments based on sales territories: East Coast, Midland, and West Coast. Following are financial data for 2018:

East Coast

Midland

West Coast

Units sold

71

69

53

Sales price per unit

\(10,300

\)13,600

\(12,000

Variable cost per unit

6,283

7,072

7,080

Prepare an income statement for Camden Company for 2018 using the contribution margin format assuming total fixed costs for the company were \)435,000. Include columns for each business segment and a column for the total company.

Short Answer

Expert verified

Answer

The total operating income of the company is $561,399.

Step by step solution

01

Calculation of net sales revenue and variable cost

Particulars

East Coast

Midland

West Coast

Net sales revenue (Units sold x Sales price per unit)

71x$10,300 =$731,300

69x$13,600 =$938,400

53x$12,000 =$636,000

Variable cost (Units sold x Variable cost per unit)

71x$6,283 =$446,093

69x$7,072 =$487,968

53x$7,080

=$375,240

02

Income statement for Camden Company for 2018

Particulars

East Coast

Midland

West Coast

Total company

Net sales revenue

$731,300

$938,400

$636,000

$2,305,700

Less: Variable cost

$446,093

$487,968

$375,240

$1,309,301

Contribution Margin

$285,207

$450,432

$260,760

$996,399

Less: Total fixed cost

$435,000

Operating Income

$561,399

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Most popular questions from this chapter

When should a company use absorption costing when setting sales prices? When should it use variable costing?

Setting sales prices The Sweet Treats Company manufactures candy that is sold to food distributors. The company produces at full capacity for six months each year to meet peak demand during the “candy season” from Halloween through Valentine’s Day. During the other six months of the year, the manufacturing facility operates at 75% of capacity. The Sweet Treats Company provides the following data for the year:

Cases of candy produced and sold 1,800,000 cases Sales price $ 37.00 per case Variable manufacturing costs 20.00 per case Fixed manufacturing costs 6,400,000 per year Variable selling and administrative costs 2.00 per case Fixed selling and administrative costs 3,500,000 per year The Sweet Treats Company receives an offer to produce 13,000 cases of candy for a special event. This is a one-time opportunity during a period when the company has excess capacity. What is the minimum sales price The Sweet Treats Company should accept for the order? Explain why

Calculating gross profit and operating income, absorption costing Calculate the gross profit and operating income for June using absorption costing

Use the following information for Short Exercises S21-4 and S21-5.

Dracut Company reports the following information for June:

Net Sales Revenue $ 755,000 Variable Cost of Goods Sold 240,000 Fixed Cost of Goods Sold 198,000 Variable Selling and Administrative Costs 168,000 Fixed Selling and Administrative Costs 79,000

Analyzing profitability

Relative Furniture Company manufactures and sells oak tables and chairs. Price and cost data for the furniture follow:

Tables Chairs

Sales Price \( 1,400 \) 50

Variable manufacturing costs 1,148 21

Sales commission (8%) 112 4

Relative Furniture has three sales representatives: Abe, Brett, and Corrin. Abe sold 50 tables with 4 chairs each. Brett sold 110 tables with 6 chairs each. Corrin sold 90 tables with 8 chairs each.

Requirements:

  1. Calculate the total contribution margin and the contribution margin ratio for each sales representative (round to two decimal places).
  2. Which sales representative has the highest contribution margin ratio? Explain why.

Computing variable costing contribution margin

Refer to your answers to Short Exercise S21-6. Product X sells for \(175 per unit. Assume no beginning inventories. Calculate the contribution margin using variable costing when Adamson:

  1. Produces and sells 2,000 units.
  2. Produces 2,500 units and sells 2,000 units
  3. Produces 5,000 units and sells 2,000 units.

S21-6 Direct materials \) 41 per unit Direct labor 57 per unit Variable manufacturing overhead 7 per unit Fixed manufacturing overhead 20,000 per year

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