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ACCT 386 - Week 4 - Homework - Question 3

ACCT 386 - Week 4 - Homework - Question 3
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ACCT 386 - Week 4 - Homework - Question 3

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Question 3

The most recent monthly contribution format income statement for Reston Company is given below:

Reston Company
Income Statement
For the Month Ended May 31

  Sales

$

900,000    

100.0

%

  Variable expenses

 

400,000    

44.4

 

 





  Contribution margin

 

500,000    

55.6

 

  Fixed expenses

 

485,000    

53.9

 

 





  Net operating income

$

15,000    

1.7

%

 










     Management is disappointed with the company’s performance and is wondering what can be done to improve profits. By examining sales and cost records, you have determined the following:

a.

The company is divided into two sales territories—Central and Eastern. The Central Territory recorded $400,000 in sales and $160,000 in variable expenses during May. The remaining sales and variable expenses were recorded in the Eastern Territory. Fixed expenses of $184,000 and $150,000 are traceable to the Central and Eastern Territories, respectively. The rest of the fixed expenses are common to the two territories.

 

b.

The company is the exclusive distributor for two products—Awls and Pows. Sales of Awls and Pows totaled $290,000 and $110,000, respectively, in the Central Territory during May. Variable expenses are 29% of the selling price for Awls and 69% for Pows. Cost records show that $145,000 of the Central Territory’s fixed expenses are traceable to Awls and $26,400 to Pows, with the remainder common to the two products.