Kima Company manufactures and sells two models of a home appliance. The Standard

Question

Kima Company manufactures and sells two models of a home appliance. The Standard model is a basic appliance with mostly manual features, while the Galaxy model is highly automated. The appliances are produced to order, and there are no inventories at the end of the year The cost accounting system at Kima allocates overhead to products based on direct labor cost. Overhead in year 1, which just ended, was $3,345,000. Other data for year 1 for the two products follow: Sales revenue Direct materials Direct labor Standard Model (20,000 units) $ 6,100,000 2,500,000 1,700,000 Galaxy Model (3,000 units) 52,800,000 400,000 530,000 Required a. Compute product line profits/loss for the Standard model and the Galaxy model for year 1. (Do not round intermediate calculations. Negative amounts should be indicated by a minus sign.) b. A study ot overhead shows that without the standard model, overhead would tall to $2,300,000. Assume all other revenues and costs would remain the same for the Galaxy model in year 2. Compute product line profits/loss for the Galaxy model in year 2 assuming the Standard model was not produced or sold. (Negative amounts should be indicated by a minus sign.) ofits/Loss for G Model - Year 2

Explanation / Answer

1 Standard Galaxy Sales revenue 6100000 2800000 Less:Direct material 2500000 400000 Direct labor 1700000 530000 Overhead 2550000 795000 Product cost 6750000 1725000 Profit/Loss -650000 1075000 2 Sales revenue 2800000 Less:Direct material 400000 Direct labor 530000 Overhead 795000 Product cost 2300000 Profit 500000

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