Kimberly's Kreations just completed its best year, generating income of $26,000 from selling decadent wedding cakes and desserts. For a business that is only two years old and run from Kimberly's own kitchen, this is quite an accomplishment. She has been asked to provide a special-event cake for one event per month at the local convention center, but at a reduced price of $450. While this is mostly fantastic news, Kimberly realizes that she is already working at maximum capacity. If she commits to these events, she will need to either find additional capacity or reduce her regular wedding cake sales. The following income statement shows Kimberly's results from last year. Sales $190,000 COGS 113,000 투표 Gross margin 77,000 Operating expenses 51,000 Operating income $26,000 Kimberly's average selling price is $1,000 per cake; fixed-MOH costs are $67,400 and are included in COGS. All other product costs vary based on volume. Average variable operating expenses are $100 per cake; remaining operating expenses are fixed. After thinking about it further, she realizes she'll avoid the variable operating expenses on the special-event cakes. (a) Your Answer Correct Answer (Used) To keep her existing sales volume and take on the new convention center events, Kimberly would need to hire additional employees who would "invade" her home while she and her family sleep. Hiring dependable night-shift workers would increase her variable product costs per unit by 20%. If she maintains her existing sales and takes on the new events under these circumstances, how much total operating income will she show for next year? (b) Total operating income $ 27,944 To maintain her current sales while also capitalizing on the new event opportunity, Kimberly could rent alternative kitchen space for these monthly special orders. Fixed operating costs would increase by $3,000 to cover space and equipment leases, as well as an overtime stipend for her shift supervisor. She anticipates the same per-unit variable product costs as last year. How much operating income will her business generate next year under this scenario? Total operating income $
Kimberly's Kreations just completed its best year, generating income of $26,000 from selling decadent wedding cakes and desserts. For a business that is only two years old and run from Kimberly's own kitchen, this is quite an accomplishment. She has been asked to provide a special-event cake for one event per month at the local convention center, but at a reduced price of $450. While this is mostly fantastic news, Kimberly realizes that she is already working at maximum capacity. If she commits to these events, she will need to either find additional capacity or reduce her regular wedding cake sales. The following income statement shows Kimberly's results from last year. Sales $190,000 COGS 113,000 투표 Gross margin 77,000 Operating expenses 51,000 Operating income $26,000 Kimberly's average selling price is $1,000 per cake; fixed-MOH costs are $67,400 and are included in COGS. All other product costs vary based on volume. Average variable operating expenses are $100 per cake; remaining operating expenses are fixed. After thinking about it further, she realizes she'll avoid the variable operating expenses on the special-event cakes. (a) Your Answer Correct Answer (Used) To keep her existing sales volume and take on the new convention center events, Kimberly would need to hire additional employees who would "invade" her home while she and her family sleep. Hiring dependable night-shift workers would increase her variable product costs per unit by 20%. If she maintains her existing sales and takes on the new events under these circumstances, how much total operating income will she show for next year? (b) Total operating income $ 27,944 To maintain her current sales while also capitalizing on the new event opportunity, Kimberly could rent alternative kitchen space for these monthly special orders. Fixed operating costs would increase by $3,000 to cover space and equipment leases, as well as an overtime stipend for her shift supervisor. She anticipates the same per-unit variable product costs as last year. How much operating income will her business generate next year under this scenario? Total operating income $
Chapter16: Tax Research
Section: Chapter Questions
Problem 64DNC
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Question
Transcribed Image Text:Kimberly's Kreations just completed its best year, generating income of $26,000 from selling decadent wedding cakes and desserts.
For a business that is only two years old and run from Kimberly's own kitchen, this is quite an accomplishment. She has been asked to
provide a special-event cake for one event per month at the local convention center, but at a reduced price of $450.
While this is mostly fantastic news, Kimberly realizes that she is already working at maximum capacity. If she commits to these events,
she will need to either find additional capacity or reduce her regular wedding cake sales. The following income statement shows
Kimberly's results from last year.
Sales
COGS
Gross margin
Operating expenses
Operating income
(a)
$190,000
113,000
77,000
Kimberly's average selling price is $1,000 per cake; fixed-MOH costs are $67,400 and are included in COGS. All other product costs
vary based on volume. Average variable operating expenses are $100 per cake; remaining operating expenses are fixed. After thinking
about it further, she realizes she'll avoid the variable operating expenses on the special-event cakes.
(b)
51,000
$26,000
Your Answer Correct Answer (Used)
To keep her existing sales volume and take on the new convention center events, Kimberly would need to hire additional
employees who would "invade" her home while she and her family sleep. Hiring dependable night-shift workers would increase
her variable product costs per unit by 20%. If she maintains her existing sales and takes on the new events under these
circumstances, how much total operating income will she show for next year?
Total operating income
Total operating income $
To maintain her current sales while also capitalizing on the new event opportunity, Kimberly could rent alternative kitchen space
for these monthly special orders. Fixed operating costs would increase by $3,000 to cover space and equipment leases, as well as
an overtime stipend for her shift supervisor. She anticipates the same per-unit variable product costs as last year. How much
operating income will her business generate next year under this scenario?
27,944
$
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