Pacific Rim Publications, Inc., specializes in reference books that keep abreast
ID: 2393737 • Letter: P
Question
Pacific Rim Publications, Inc., specializes in reference books that keep abreast of political and economic issues in the Pacific Rim countries. The results of the company’s operations during the prior year are given in the following table. All units produced during the year were sold. (Ignore income taxes.)
Pacific Rim Publications, Inc., specializes in reference books that keep abreast of political and economic issues in the Pacific Rim countries. The results of the company’s operations during the prior year are given in the following table. All units produced during the year were sold. (Ignore income taxes.)
Required: 1-a. Prepare a traditional income statement for the company. PACIFIC RIM PUBLICATIONS, INGC Income Statement For the Year Ended December 31, 20XX Sales Cost of goods sold Gross margin Operating expenses 0 Administrative expenses Net income 0Explanation / Answer
1a) Income Statement as per traditional absorption method: Amount $ Sales revenue $1,650,000 Less: COGS: Manuf -variable 461000 Manuf - fixed 857000 1318000 Gross Profit $332,000 Less: Expenses: Administrative 101000 Selling 96000 197000 Net Income $135,000 1b) Income Statement as per Contribution method: Per unit Amount $ Sales revenue $1,650,000 Less: Variable costs: Manufacturing 857000 Administrative 63000 Selling 28000 Total variable costs $948,000 Contribution $702,000 Manufacturing 461000 Administrative $33,000 Selling $73,000 Total fixed costs 567000 Net Income $135,000 2) Operating leverage = Contribution / Net Income 702000 / 135000 = 5.2 3) Increase in sales revenue = 15% Increase in contribution = 702000 * 15% = 105300 Increase in Net Income = 105300 / 135000 = 78% 4) Through the Contribution income statement, the operating manager calculated the increase in Net Income under Point 3.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.