Essay Title: 

ACCMOD2

March 24, 2016 | Author: | Posted in accounting, mathematics and economics

The result of operation of Harry Huffnpuff shown in two different formats of Income Statement is as follows

INCOME STATEMENT (Traditional Format

For the year ended December 31 , 2000

Sales (5 bundles /wk 680 /bundle

Vases 72 ,000

weights 32 ,000

Tumblers 32 ,000

br Less : Cost of Sale 2 ,800 /5 bundles x 40 wks ) 112 ,000

Gross Profit 24 ,000

Less : Operating Expenses

Wages 8 ,000

Packaging Shipping Expenses 16 ,000

Advertising Promotion 6 ,050

br NET INCOME (LOSS ) FROM OPERATION ( 6 ,050 p [banner_entry_middle]

INCOME STATEMENT (Contribution Format

For the year ended December 31 , 2000

Sales 136 ,000

Less : Variable Cost

Cost of Goods Sold 112 ,000

Wages ( 2hrs / bundle ) 4 ,000

Packaging Shipping Expense 16 ,000

br Contributon Margin 4 ,000

Less : Fixed cost

Wages 4 ,000

Advertising Promotion 6 ,050

br NET INCOME (LOSS ) FROM OPERATION ( 6 ,050

Harry ‘s breakeven point (BEP ) including desired net profit for the year 2000 is shown below

Breakeven point sales Fixed Cost Desired Profit

Contribution Margin 10 ,050 34 ,722 (before tax

2 .94 1 ,522 ,857

Base on the above computation of BEP , it is obvious that Harry ‘s present sale is far below his goal . He must produce at least 2 ,240 bundles per year of his products in to meet his desired net income . The following recommendations must be taken into account to improve Harry ‘s cahflow Harry can increase the selling price of the products . Under the Law of Supply and Demand , when supply is low and demand is high , price is also high . So in this case , since his products are in high demand , he can make an additional mark-up on the selling price Harry must lessen the time spent or even stop visiting the galleries and art shows and save the 6 ,050 expenses . He already created goodwill to customers so there is no need for him to spend more time in promoting his product . The time saved must be devoted in creating more products to increase sales Maximize the available hours of Sam . Harry can delegate the polishing and finishing process to Sam so that he can devote his time in the `hot time ‘ process which will yield more products Increase production capacity . When sales volume increases , fixed cost per unit decreases and net income increases

Reference

Anthony , R , Reece , J , Hertenstein , J . Accounting : Text and cases (9th ed

Chicago : Irwin publishing , 1995… [banner_entry_footer]

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