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Book/movie review
22/08/2022
Leander Office Products Inc. produces and sells small storage and organizational products for office use. During the first month of operations, the products sold well. Andrea Leander, the owner of the company, was surprised to see a loss for the month on her income statement. This statement was prepared by a local bookkeeping service recommended to her by her bank manager. The statement follows:
EANDER OFFICE PRODUCTS INC.
Income Statement
Sales (45,600units)
$
264,480
Variable expenses:
Variable cost of goods sold*
$
119,472
Variable selling and administrative expenses
35,112
154,584
Contribution margin
109,896
Fixed expenses:
Fixed manufacturing overhead
108,864
Fixed selling and administrative expenses
13,224
122,088
Operating loss
$
(12,192
)
*Consists of direct materials, direct labour, and variable manufacturing overhead.
Leander is discouraged over the loss shown for the month, particularly since she had planned to use the statement to encourage investors to purchase stock in the new company. A friend who is an accountant insists that the company should be using absorption costing rather than variable costing. He argues that if absorption costing had been used, the company would probably have reported a profit for the month.
Selected cost data relating to the product and to the first month of operations follow:
Units produced
57,600
Units sold
45,600
Variable costs per unit:
Direct materials
$
1.20
Direct labour
$
1.17
Variable manufacturing overhead
$
0.25
Variable selling and administrative expenses
$
0.77
The writer is very fast, professional and responded to the review request fast also. Thank you.
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