5 of 19 ACCT212 SEM 181-ASSIGNMENT2 Judy Jean, a recent graduate of Rolling's accounting program, evaluated the operating performance of Artie Company's six divisions Judy made the following presentation to Artie's board of directors and suggested the Huron Division be eliminated. "If the Huron Division is liminated, she said, our total profits would increase by SR26,000 Five Divisions Dision Total $100.000 1,764.200 Sales Cost of goods sold Gross prolis $1,664,200 978,520 76.000 1,054,520 685.680 27.940 24.000 50.000 77.940 131,740 Net income 157,740 $(26.000) In the Huron Division, cost of goods sold is SR61,000 variable and SR15,000 fixed, and operating expenses are SR26,000 variable and SR24,000 fixed. None of the Huron Division's fixed costs will be eliminated if the division is discontinued Is Judy right about eliminating the Huron Division? Prepare a schedule to support your Net Income Increase (Decrease) Continue Eliminate Sales Variable costs Cost of goods sold Operating expenses Total variable Contribution margin Fixed costs Cost of goods sold Operating expenses Total fixed Net income (loss) ACCT212 SEM 181-ASSIGNMENT 2 QUESTIONS o mobily 1:35 PM Bassam ACCT212 181 - Assignment 2 6 of 19 ACCT212 SEM 181-ASSIGNMENT 2 Cawley Company makes three models of tasers Information on the three products is given below. Tingler Shocker Stunner 300,000 $500,000$200,000 150,000 150,000 120,000 0,000000 Variable expenses 200,000 145,000 5,000 Fised expenses Net income 30,000 570.000 $(40.000 Fixed expenses consist of SR300,000 of common costs alocated to the three products based on relative sales, and additional fixed expenses of SR30,000 (Tingler), SR80,000 (Shocker). and SR35,000 (Stunner) The common costs will be incuurred regardless of how many models are produced. The other fixed expenses would be eliminated if a model is phased out James Watt, an executive with the company, feels the Stunner line should be discontinued to increase the company's net income (a) Compute current net income for Cawley Company b) Compute net income by product line and in total for Cawley Company if the company discontinues the Stunner product line. (Hint: Allocate the SR300,000 common costs to the two remaining product lines based on their relative sales) Tingler Total Sales Variable expenses Contribution margin Fixed expenses Net income (c) Should Cawley eliminate the Stunner product line? Why or why not? 7 of 19 ACCT212 SEM 181-ASSIGNMENT 2 A) Abu Laqman Tire Company manufactures racing tires for bicycles. Abe Laqman sells tires for SRS0 each. Abu Luqman is planning for the next year by developing a master budget by quarters. Abu Luqman's halance sheet for December 31, 2014, follows ABU LUQMAN TIRE COMPANY Balance Sheet December 31, 2014 ASSETS Current Assets: 20,000 Accounts Receivable Raw Materials Inventory Finished Goods Inventory Total Current Assets 3,000 SR 53,800 Property, Plant, and Equipment Equipment Less: Accumulated Depreciation.(57,000) Total 175,000 118.000 LIABILITIES Current Liabilities: STOCKHOLDERS EQUITY Common St Retained Earnings 125,000 41.800 .- Total Liabilities and Stockholders Equity 171800 Other data for Abu Luqman Tire Company a. Budgeted sales are 900 tires for the Erst quarter and expected to increase by 100 tires per quarter. Cash sales are expected to be 30% of total sales, with the remaining 70% sales on account. Finished Goods Inventory on December 31 consists of 200 tires at SR29 each. Desired ending Finished Goods Inventory is 40% of the next quarter's sales; first quarter sales for 2016 are expected be 1,300 tires. FIFO inventory costing method is used. b. c. d. Direct materials cost is SR15 per tire e. Desired ending Raw Materials Inventory is 20% of the next quarter's direct materials needed for production; desired ending inventory for December 31 is SR3,000; indirect materials are insignificant and not considered for badgeting purposes. ACCT212 SEM 181-ASSIGNMENT2 f. Each tire requires 0.20 hours of direct labor; direct labor costs average SR18 per hour