Accounting-QA259 Online Services

During 2016, Spade Company, a manufacturer of men’s blue jeans, had manufactured 2.2 million pairs of jeans, which had been sold to various clothing wholesalers and department stores. Partway through the year, the president, Ruth Catone, died unexpectedly. Her son, Chuck, became the new president. Chuck had worked for 15 years in the marketing phases of the business but he had little experience with the accounting and manufacturing, which were his mother’s strengths.
Following are two versions of the 2016 income statement, first in standard financial reporting form and then in contribution form. Both forms include totals and per unit amounts. Note that variable selling and administrative expenses consist of sales commissions, shipping expenses, and advertising allowances paid to customers based on units sold.
Income Statement
For Year Ended December 31, 2016
Total Per Unit
Sales $77,000,000 $35.00
Less: Cost of Goods sold 46,200,000 21.00
Gross Margin 30,800,000 14.00
Less: Selling and administrative expenses 28,600,000 13.00
Operating income $ 2,200,000 $ 1.00
Contribution Form Income Statement
For the Year Ended December 31, 2016
Total Per Unit
Sales $77,000,000 $35.00
Less variable expenses:
Manufacturing $35,200,000
Selling & administrative 16,500,000 51,700,000 23.50
Contribution margin $25,300,000 $ 11.50
Less fixed expenses:
Manufacturing $ 11,000,000
Selling & administrative 12,100,000 23,100,000 10.50
Operating income $ 2,200,000 $ 1.00
Chuck has asked you to address two questions regarding the pricing of special orders.
1. (7 points)Near the end of 2016, I brought in a special order from Costco for 140,000 jeans at $34 each. Costco agreed to cover all shipping expenses and there would be zero special advertising allowance for the order. I said I’d accept a flat $47,600 sales commission instead of the usual 5% of selling price, but my mother refused the order. She insisted on maintaining a rigid pricing policy, saying that it was bad business to accept orders for a price less than 165% of full manufacturing cost, which in this case would be 165% x 21.00/unit or $34.65.
That policy bothered me. We had idle capacity. The way I figured, our manufacturing costs would go up by 140,000 ´ $21 = $2,940,000, but our selling and administrative expenses would go up by only my sales commission of $47,600. That would mean additional operating income of 140,000 ´ ($34 – $21) minus $47,600, or $1,820,000 minus $47,600, or $1,772,400. That’s too much money to give up just to maintain a general pricing policy.
Chuck asks you: Was my analysis of the impact on operating income correct? If not, please show me the correct additional operating income if we had accepted this order.”

How it Works

How It works ?

Step 1:- Click on Submit your Assignment here or shown in top menu of every page and fill the quotation form with all the details. In the comment section, please mention product code mentioned in end of every Q&A Page. You can also send us your details through our email id with product code in the email body. Product code is essential to locate your questions so please mentioned that in your email or submit your quotes form comment section.

Step 2:- While filling submit your quotes form please fill all details like deadline date, expected budget, topic , your comments in addition to product code . The date is asked to provide deadline.

Step 3:- Once we received your assignments through submit your quotes form or email, we will review the Questions and notify our price through our email id. Kindly ensure that our email id  must not go into your spam folders. We request you to provide your expected budget as it will help us in negotiating with our experts.

Step 4:- Once you agreed with our price, kindly pay by clicking on Pay Now and please ensure that while entering your credit card details for making payment, it must be done correctly and address should be your credit card billing address. You can also request for invoice to our live chat representatives.

Step 5:- Once we received the payment we will notify through our email and will deliver the Q&A solution through mail as per agreed upon deadline.

Step 6:-You can also call us in our phone no. as given in the top of the home page or chat with our customer service representatives by clicking on chat now given in the bottom right corner.


Features for Assignment Help

 Zero Plagiarism
We believe in providing no plagiarism work to the students. All are our works are unique and we provide Free Plagiarism report too on requests.
We believe in providing perfect, relevant and 100% accurate solutions to the student as per questions asked. All our experts are perfect in providing that so as to give unique experience to the students.
Three Stage Quality Check
We are the only service providers boasting of providing original, relevant and accurate solutions. Our three stage quality process help students to get perfect solutions.
100% Confidential
All our works are kept as confidential as we respect the integrity and privacy of our clients.

Related Services

2. (7 points)After receiving your answer to question 1, Chuck said, “Forget that I had the Costco order. I had an even bigger order from Lands’ End. It was for 600,000 units and would have filled the plant completely. I told my mother I’d settle for no commission. There would have been no selling and administrative costs whatsoever because Lands’ End would pay for the shipping and would not get any advertising allowances.
Lands’ End offered $15.00 per unit. Our fixed manufacturing costs would have been spread over 2.8 million instead of 2.2 million units. Wouldn’t it have been advantageous to accept the offer? Our old fixed manufacturing costs were $5.00 per unit. The added volume would reduce that cost more than our loss on our variable costs per unit, as shown by the following calculations.
Old fixed manufacturing cost per unit, $11,000,000 ÷ 2,200,000 = $5.00
New fixed manufacturing cost per unit, $11,000,000 ÷ 2,800,000 = 3.93
“Savings per unit” $ 1.07
Loss on variable manufacturing costs per unit, $15.00 – $16.00 (1.00)
Net savings per unit in manufacturing costs $ .07
Therefore, accepting this large order would have increased our income by 600,000 unit x .07/unit = $42,000.
Chuck asks you: Am I correct? If not, what would have been the impact on total operating income if we had accepted the order?”

Product code: Accounting-QA259

Looking for Accounting-QA259,please click here

User Rating
5 based on 1 votes
Posted in Q&A