Leidenheimer Corporation manufactures small airplane propellers. Sales for year 2 totaled $1,620,000. Information regarding resources for the month follows. Resources Used Resources Supplied Parts management $ 58,000 $ 73,000 Energy 109,000 109,000 Quality inspections 94,000 103,000 Long-term labor 55,000 69,000 Short-term labor 39,000 58,000 Setups 143,000 220,000 Materials 320,000 320,000 Depreciation 120,000 220,000 Marketing 131,000 168,000 Customer service 24,000 41,000 Administrative 102,000 132,000 In addition, Leidenheimer spent $65,000 on 50 engineering changes with a cost-driver rate of $1,300 and $56,000 on 8 outside contracts with a cost driver rate of $7,000. Required: Management has requested that you do the following: a. Prepare a traditional income statement. b. Prepare an activity-based income statement. Please answer both a & b. Thanks
Cost-Volume-Profit Analysis
Cost Volume Profit (CVP) analysis is a cost accounting method that analyses the effect of fluctuating cost and volume on the operating profit. Also known as break-even analysis, CVP determines the break-even point for varying volumes of sales and cost structures. This information helps the managers make economic decisions on a short-term basis. CVP analysis is based on many assumptions. Sales price, variable costs, and fixed costs per unit are assumed to be constant. The analysis also assumes that all units produced are sold and costs get impacted due to changes in activities. All costs incurred by the company like administrative, manufacturing, and selling costs are identified as either fixed or variable.
Marginal Costing
Marginal cost is defined as the change in the total cost which takes place when one additional unit of a product is manufactured. The marginal cost is influenced only by the variations which generally occur in the variable costs because the fixed costs remain the same irrespective of the output produced. The concept of marginal cost is used for product pricing when the customers want the lowest possible price for a certain number of orders. There is no accounting entry for marginal cost and it is only used by the management for taking effective decisions.
Leidenheimer Corporation manufactures small airplane propellers. Sales for year 2 totaled $1,620,000. Information regarding resources for the month follows.
| Resources Used | Resources Supplied | ||||||
| Parts management | $ | 58,000 | $ | 73,000 | |||
| Energy | 109,000 | 109,000 | |||||
| Quality inspections | 94,000 | 103,000 | |||||
| Long-term labor | 55,000 | 69,000 | |||||
| Short-term labor | 39,000 | 58,000 | |||||
| Setups | 143,000 | 220,000 | |||||
| Materials | 320,000 | 320,000 | |||||
| 120,000 | 220,000 | ||||||
| Marketing | 131,000 | 168,000 | |||||
| Customer service | 24,000 | 41,000 | |||||
| Administrative | 102,000 | 132,000 | |||||
In addition, Leidenheimer spent $65,000 on 50 engineering changes with a cost-driver rate of $1,300 and $56,000 on 8 outside contracts with a cost driver rate of $7,000.
Required:
Management has requested that you do the following:
a. Prepare a traditional income statement.
b. Prepare an activity-based income statement.
Please answer both a & b. Thanks
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