CPA Review, Inc., provides review courses twice each year for students studying to take the CPA exam. The cost of textbooks is included in the registration fee. Text material requires constant updating and is useful for only one course. To minimize printing costs and ensure availability of books on the first day of class, CPA Review has books printed and delivered to its offices two weeks in advance of the first class. To ensure that enough books are available, CPA Review normally orders 10 percent more than expected enrollment. Usually there is an oversupply and books are thrown away. However, demand occasionally exceeds expectations by more than 10 percent and there are too few books available for student use. CPA Review has been forced to turn away students because of a lack of textbooks. CPA Review expects to enroll approximately 110 students per course. The tuition fee is $820 per student. The cost of teachers is $23,000 per course, textbooks cost $53 each, and other operating expenses are estimated to be $34,500 per course.

Required:

a-1.

Prepare an income statement, assuming that 92 students enroll in a course.

a-2.

Determine the cost of waste associated with unused books.

b-1.

Prepare an income statement, assuming that 119 students attempt to enroll in the course. Note that 9 students are turned away because of too few textbooks.

a. 119 students attempt to register, but only 110 students can be accepted:

b. If all 119 students could be accepted, the income statement would be as follows:

b-2.

Determine the amount of lost profit resulting from the inability to serve the 9 additional students.

c.

Suppose that textbooks can be produced through a high-speed copying process that permits delivery just in time for class to start. The cost of books made using this process, however, is $58 each. Assume that all books must be made using the same production process. In other words, CPA Review cannot order some of the books using the regular copy process and the rest using the high-speed process. Prepare an income statement under the JIT system assuming that 92 students enroll in a course.

d-1.

Assume the same facts as in requirement c with respect to a JIT system that enables immediate delivery of books at a cost of $58 each. Prepare an income statement under the JIT system, assuming that 119 students enroll in a course.

d-2.

Which system results in higher income.