Pool Pro produces and sells liquid chlorine for swimming pools. The company annually produces and sells...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Pool Pro produces and sells liquid chlorine for swimming pools. The company annually produces and sells 300,000 gallons of its chlorine. Because of this year's cool summer, projected demand for its product is only 250,000 gallons. Based on projected production and sales of 250,000 gallons, the company estimates the following income using absorption costing. Sales (250,000 gallons at S8 per gallon) Cost of soods sold (250,000 gallons at S6.80 per vallon) Gross profit Selling and administrative expenses Income $2.000,000 1,700,000 300,000 300,000 Its product cost per gallon follows and consists mainly of fixed overhead because its automated production process uses expensive equipment. Direct materials Direct labor Variable overhead S1.00 per galon $0.60 per gallon S0.40 per galon $4. 80 per gallon Fixed overhead (51L200,000/250,000 gallons) Selling and administrative expenses consist of variable selling and administrative expenses of S0.80 per gallon and fixed selling and administrative expenses of S100,000 per year. The company's president will not earn a bonus unless a positive income is reported. The controller suggests that because the company has large storage capacity, it can report a positive income by setting its production at the usual 300,000 gallon level even though it expects to sell only 250,000 gallons. The president is surprised that the company can report income by producing more without increasing sales. Required 1. (a) Prepare an income statement using absorption costing based on production of 300,000 gallons and sales of 250,000 gallons. (b) Can the company report positive income by increasing production to 300,000 gallons and storing the 50,o00 gallons of excess production in inventory? 2. Should the company produce 300,000 gallons given that projected demand is 250,000 gallons? Explain, and refer to any ethical implications of such a managerial decision for income reporting. Pool Pro produces and sells liquid chlorine for swimming pools. The company annually produces and sells 300,000 gallons of its chlorine. Because of this year's cool summer, projected demand for its product is only 250,000 gallons. Based on projected production and sales of 250,000 gallons, the company estimates the following income using absorption costing. Sales (250,000 gallons at S8 per gallon) Cost of soods sold (250,000 gallons at S6.80 per vallon) Gross profit Selling and administrative expenses Income $2.000,000 1,700,000 300,000 300,000 Its product cost per gallon follows and consists mainly of fixed overhead because its automated production process uses expensive equipment. Direct materials Direct labor Variable overhead S1.00 per galon $0.60 per gallon S0.40 per galon $4. 80 per gallon Fixed overhead (51L200,000/250,000 gallons) Selling and administrative expenses consist of variable selling and administrative expenses of S0.80 per gallon and fixed selling and administrative expenses of S100,000 per year. The company's president will not earn a bonus unless a positive income is reported. The controller suggests that because the company has large storage capacity, it can report a positive income by setting its production at the usual 300,000 gallon level even though it expects to sell only 250,000 gallons. The president is surprised that the company can report income by producing more without increasing sales. Required 1. (a) Prepare an income statement using absorption costing based on production of 300,000 gallons and sales of 250,000 gallons. (b) Can the company report positive income by increasing production to 300,000 gallons and storing the 50,o00 gallons of excess production in inventory? 2. Should the company produce 300,000 gallons given that projected demand is 250,000 gallons? Explain, and refer to any ethical implications of such a managerial decision for income reporting.
Expert Answer:
Related Book For
Essentials of Accounting for Governmental and Not-for-Profit Organizations
ISBN: 978-0073527055
10th Edition
Authors: Paul A. Copley
Posted Date:
Students also viewed these accounting questions
-
A company uses departmental overhead rates based on direct labor hours. Is the sum of departmental over- or under applied factory overhead any different if a plant wide or blanket rate is used? Are...
-
A rectangular swimming pool is 40 feet long, 20 feet wide, 8 feet deep at the deep end, and 3 feet deep at the shallow end (see Figure 10). If the pool is filled by pumping water into it at the rate...
-
Which of the following is not a characteristic of most preferred stocks? a. Preference as to dividends. b. No voting power. c. Detachable conversion options are not valued on the balance sheet. d....
-
Consider a scenario, in which there were four students (Arthur, Kevin, Morris, and Orlando) driving their cars back home from Houston. However, only Orlando was involved in a car accident. We want to...
-
The Weemow Lawn Service wants to start doing snow removal in the winter when there are no lawns to maintain. Jeff and Julie Weems, who own the service, are trying to determine how much equipment they...
-
a. After a large number of flips, the overall proportion of heads settles down to nearly what value? b. Approximately how many coin flips does it take before the proportion of heads settles down? c....
-
What are the factors that explain the difference in yields to maturity between long-term and short-term bonds?
-
The motion of the uniform rod AB of mass 8 kg and length h L = 900 mm is guided by small wheels of negligible mass that roll on the surface shown. If the rod is released from rest when =20?,...
-
2)Torres Inc. recently began production of a new product, the halogen light, which required an investment of $600,000 in assets. The costs of producing and selling 10,000 halogen lights are estimated...
-
Kate Jackson, a new staff accountant, is confused because of the complexities involving accounting standard setting. Specifically, she is confused by the number of bodies issuing financial reporting...
-
Screenshot 2023-10-05 at 12.22.46 PM 40. What is the first thing printed by this program? A. 20 B. 25 C. 30 D. test Q Search int constrainIt (int val, int min, int max) { if (val < min) return min;...
-
Is impression management negative or positive? Why?
-
Why do economists sometimes conduct analysis under assumptions of a closed economy? What do you understand by the term an open economy?
-
Discuss the types of reinforcements that are available to managers for changing an employees behavior.
-
Explain how goals can be determined under the Goal-Setting Theory.
-
The economist John Maynard Keynes wrote: Lenin is said to have declared that the best way to destroy the capitalist system was to debauch the currency. By a continuing process of inflation,...
-
Square(s) wide and The flat piece would be square(s) tall. Part 2 out of 2 b. Base thirteen The unit piece would be square(s) wide and square(s) tall. The long piece would be square(s) wide and...
-
The MIT Sloan School of Management is one of the leading business schools in the U.S. The following table contains the tuition data for the masters program in the Sloan School of Management. a. Use...
-
Prepare budgetary entries, using general ledger accounts only, for each of the following unrelated situations: a. Anticipated revenues are $10 million; anticipated expenditures and encumbrances are...
-
Identify and describe the five environmental differences between governments and for-profit business enterprises as identified in the Governmental Accounting Standards Boards Why Governmental...
-
Consider FASB standards for mergers and acquisitions by not-for-profit organizations. Answer the following questions: a. What is the difference between a merger and an acquisition? b. What is the...
-
When a consumer spends her income on goods and services in such a way that her utility is maximized, she reaches a. monetary equilibrium. b. market equilibrium. c. consumer equilibrium. d. marginal...
-
What is the connection between the law of demand and the law of diminishing marginal utility?
-
In consumer equilibrium, a. the marginal utility from consumption is the same across all goods. b. individuals seek the combination of goods that maximizes their satisfaction, given limited income....
Study smarter with the SolutionInn App