Pat Miranda, the new controller of Vault Hard Drives, Inc., has just returned from a seminar on the choice of the activity level in the predetermined overhead rate. Even though the subject did not sound exciting at first, she found that there were some important ideas presented that should get a hearing at her company. After returning from the seminar, she arranged a meeting with the production manager, J. Stevens, and the assistant production manager, Marvin Washington. Traditional Approach to Computation of the Predetermined Overhead Rate Estimated total manufacturing overhead cost, $2,016,000 Estimated total units produced, 84,000=$24.00 per unit New Approach to Computation of the Predetermined Overhead Rate Using Capacity in the Denominator Estimated total manufacturing overhead cost at capacity, $2,016,000 Total units at capacity, 100,000 units =$20.16 per unit J.: Whoa!! I don't think I like the looks of that "Cost of unused capacity." If that thing shows up on the income statement, someone from headquarters is likely to come down here looking for some people to lay off. Marvin: I'm worried about something else too. What happens when sales are not up to expectations? Can we pull the "hat trick"? Pat: I'm sorry, I don't understand. J.: Marvin's talking about something that happens fairly regularly. When sales are down and profits look like they are going to be lower than the president told the owners they were going to be, the president comes down here and asks us to deliver some more profits. Marvin: And we pull them out of our hat. J.: Yeah, we just increase production until we get the profits we want. Pat: I still don't understand. You mean you increase sales? J.: Nope, we increase production. We're the production managers, not the sales managers. Required: In all of the questions below, assume that the predetermined overhead rate under the traditional method is $24 per unit, and under the new capacity-based method it is $20.16 per unit 1. Assume actual sales is 80,000 units and the actual production in units, actual selling price, actual variable manufacturing cost per unit, and actual fixed costs all equal their respective budgeted amounts. Given these assumptions: a. Compute net operating income using the traditional income statement format. b. Compute net operating income using the new income statement format. 2. Assume that actual sales is 80,000 units and the actual selling price, actual variable manufacturing cost per unit, and actual fixed costs all equal their respective budgeted amounts. Under the traditional approach, how many units would have to be produced to realize net operating income of $220,000 ? 3. Assume that actual sales is 80,000 units and the actual selling price, actual variable manufacturing cost per unit, and actual fixed costs all equal their respective budgeted amounts. Under the new capacity-based approach, how many units would have to be produced to realize net operating income of $220,000 ? Complete this question by entering your answers in the tabs below. Compute net operating income using the traditional income statement format. Compute net operating income using the new income statement format Assume that actual sales is 80,000 units and the actual selling price, actual variable manufacturing cost per unit, and actual fixed costs all equal their respective budgeted amounts. Under the traditional approach, how many units would have to be produced to realize net operating income of $220,000 ? (Do not round your intermediate calculations and round your final answers to the nearest whole dollar number.) Assume that actual sales is 80,000 units and the actual selling price, actual variable manufacturing cost per unit, and actual fixed costs all equal their respective budgeted amounts. Under the new capacity-based approach, how many units would have to be produced to realize net operating income of $220,000 ? (Do not round your intermediate calculations and round your final answers to the nearest whole dollar number.) Pat Miranda, the new controller of Vault Hard Drives, Inc., has just returned from a seminar on the choice of the activity level in the predetermined overhead rate. Even though the subject did not sound exciting at first, she found that there were some important ideas presented that should get a hearing at her company. After returning from the seminar, she arranged a meeting with the production manager, J. Stevens, and the assistant production manager, Marvin Washington. Traditional Approach to Computation of the Predetermined Overhead Rate Estimated total manufacturing overhead cost, $2,016,000 Estimated total units produced, 84,000=$24.00 per unit New Approach to Computation of the Predetermined Overhead Rate Using Capacity in the Denominator Estimated total manufacturing overhead cost at capacity, $2,016,000 Total units at capacity, 100,000 units =$20.16 per unit J.: Whoa!! I don't think I like the looks of that "Cost of unused capacity." If that thing shows up on the income statement, someone from headquarters is likely to come down here looking for some people to lay off. Marvin: I'm worried about something else too. What happens when sales are not up to expectations? Can we pull the "hat trick"? Pat: I'm sorry, I don't understand. J.: Marvin's talking about something that happens fairly regularly. When sales are down and profits look like they are going to be lower than the president told the owners they were going to be, the president comes down here and asks us to deliver some more profits. Marvin: And we pull them out of our hat. J.: Yeah, we just increase production until we get the profits we want. Pat: I still don't understand. You mean you increase sales? J.: Nope, we increase production. We're the production managers, not the sales managers. Required: In all of the questions below, assume that the predetermined overhead rate under the traditional method is $24 per unit, and under the new capacity-based method it is $20.16 per unit 1. Assume actual sales is 80,000 units and the actual production in units, actual selling price, actual variable manufacturing cost per unit, and actual fixed costs all equal their respective budgeted amounts. Given these assumptions: a. Compute net operating income using the traditional income statement format. b. Compute net operating income using the new income statement format. 2. Assume that actual sales is 80,000 units and the actual selling price, actual variable manufacturing cost per unit, and actual fixed costs all equal their respective budgeted amounts. Under the traditional approach, how many units would have to be produced to realize net operating income of $220,000 ? 3. Assume that actual sales is 80,000 units and the actual selling price, actual variable manufacturing cost per unit, and actual fixed costs all equal their respective budgeted amounts. Under the new capacity-based approach, how many units would have to be produced to realize net operating income of $220,000 ? Complete this question by entering your answers in the tabs below. Compute net operating income using the traditional income statement format. Compute net operating income using the new income statement format Assume that actual sales is 80,000 units and the actual selling price, actual variable manufacturing cost per unit, and actual fixed costs all equal their respective budgeted amounts. Under the traditional approach, how many units would have to be produced to realize net operating income of $220,000 ? (Do not round your intermediate calculations and round your final answers to the nearest whole dollar number.) Assume that actual sales is 80,000 units and the actual selling price, actual variable manufacturing cost per unit, and actual fixed costs all equal their respective budgeted amounts. Under the new capacity-based approach, how many units would have to be produced to realize net operating income of $220,000 ? (Do not round your intermediate calculations and round your final answers to the nearest whole dollar number.)