Birchfield Company reports the following operating results for the month of February sales $900,000 (units 15,000); variable costs $472,500; and fixed costs $202.500. Management is considering the following independent courses of action to increase net income. 1. Increase selling price by 2.5% with no change in total variable costs or units sold. 2. Reduce variable costs to 49% of sales. Instructions (a) Compute the net income to be earned under each alternative. Which course of action will produce the highest net income? (b) Birchfield's management is looking at longer term solutions to improve net income. One of the options they have reviewed will increase fixed expenses by $27,500 while reducing variable expenses by $2 per unit. Management feels that with these changes the price of the product could be reduced by $1 per unit. The decrease in price will then result in an increase in unit sales of 5% Compute the net income to be earned under this alternative. Do you recommend this option? Why or why not?
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
Birchfield Company reports the following operating results for the month of February sales
$900,000 (units 15,000); variable costs $472,500; and fixed costs $202.500. Management is considering the following independent courses of action to increase net income.
1. Increase selling price by 2.5% with no change in total variable costs or units sold.
2. Reduce variable costs to 49% of sales.
Instructions
(a) Compute the net income to be earned under each alternative. Which course of action will produce the highest net income?
(b) Birchfield's management is looking at longer term solutions to improve net income. One of the options they have reviewed will increase fixed expenses by $27,500 while reducing variable expenses by $2 per unit. Management feels that with these changes the price of the product could be reduced by $1 per unit. The decrease in price will then result in an increase in unit sales of 5% Compute the net income to be earned under
this alternative. Do you recommend this option? Why or why not?
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