Principles of Accounting Volume 2
19th Edition
ISBN: 9781947172609
Author: OpenStax
Publisher: OpenStax College
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Transcribed Image Text:Feed 'N Grow Co. manufactures fertilizer for farmers in the prairies. It specialises in
fertilizer that helps crops grow during dry seasons. The income statement presented
below shows the operating results for the fiscal year just ended. Feed 'N Grow had
sales of 1,800 tonnes of product during that year. The maximum output under the
existing manufacturing facilities at Feed 'N Grow is 4,800 tonnes.
Feed 'N Grow Co.
Revenues
Variable Costs:
Income Statement
For the year ended June 30, Year 6
Direct materials
Direct labour
Sales commissions
Maintenance expenses
Administration expenses
Total variable costs
Fixed costs:
Amortization - Factory equipment
Marketing expenses
Administrators' salaries
Other
Total fixed costs
Operating income before income taxes
Income taxes
Net Income
225,000
75,000
55,000
44,000
33,000
125,000
90,000
60,000
25,350
$1,080,000
432,000
300,350
347,650
69,530
$ 278,120
Required:
a) If the sales volume is estimated to increase by 600 tonnes for next year, and if the selling
price and cost behaviour patterns remain the same next year, how much net income does
Feed 'N Grow expect to earn next year? Show all your calculations.
b) Assume Feed 'N Grow estimates the selling price per tonne will increase 10% next
year due to the popular demand of the product and variable cost will increase by $57
per tonne. To cope with the expected additional demand, the company is going to hire
two more administrative assistants at a total cost of $65,000 per year. Compute how
many tonnes must be sold next year to earn net income of $1,000,000. Show all your
calculations.
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Step 1: Definition of net income:
VIEW Step 2: Working note- Calculation of selling price per tonne, variable cost per tonne, and income tax rate:
VIEW Step 3: Requirement a- Calculation of net income with the increase in sales by 600 tonnes:
VIEW Step 4: Requirement b- Calculation of tonnes to be sold to achieve net income of $,1,000,000:
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