pls. i need help on this one. the first page was a little bit blurred so it posted it again on the 3rd and 4th pics.. i really need all the questions answered so i can pass my accounting subject..
es CASE 5-20 The Case of the Pummeting Profits; Lean Production rL02, L03, Loq These statements can't be right, quarter were up by 25% over the first quarter, yet these income statements show a precipitous drop in net operating income for the second quarter. Those accounting people have foaled something statements can't be right." said Ben Yoder, president of Rayco, Inc. "Our sales in the second up."Mt. Yoder was referring to the following statements (absorption costing basis): Rayco, Inc. Income Statements For the First Two Quarters Sales Cost of goods sold Gross margn Seling and administrative expenses.... Net operating income. . First Quarter $480,000 240,000 240,000 200,000 S 40,000 Second Quarter $600,000 372,000 228,000 215,000 $ 13,000 After studying the statements briefly, Mr. Yoder called in the controller to see if the mistake in the secood quarter could be located before the figures were released to the press. The controller stated. "I'm sory to say that those figures are correct, Ben. I agree that sales went up daring the second quarter, but the problem is in production. You see, we budgeted to produce i5,000 units each quarter, but a strike on the west coast among some of our suppliers forced us to cut in the second quarter back to only 9,000 units. That's what caused the drop in net operating income production Mr. Yoder was confused by the controller's explanation. He replied. "This doesn't make sense I ask you to explain why net operating income dropped when sales went up and you talk abvat production' So what if we had to cut back production? We stil were able to increase sales by 25% If sales go up, then net operating income should go up. If your statements can't show a simple thing like that, then it's time for some changes in your department! Budgeted production and sales for the year, along with actual production and sales for the first two quarters, are given below Quarter First SecondThird Fourth 12,000 15,000 15,000 18,000 Actual sales (units) Budgeted production (units)15,000 5,000 15,000 15,000 Actual production (units) 12,000 15,000 5,000 9,000 The company's plant is heavily automated, and fixed manufacturing overhead amountsw $180,000 each quarter. Variable manufacturing costs are $8 shown on the prior page). goods sold for the quarter. The company had 4,000 anits in inve 55 per unit. Required t per unit. The fixed manufacturing of product at a rate of $12 per unit (based on the budgeted producb Any underapplied or overapplied overhead is closed directly to cost ntory to start the first quanet an low assumption. Variable selling and administrative expenses What characteristic of absorption costing caused the drop in net operating income for the s ond quarter and what could the controller have said to explain the problen? Prepare a contribution format variable f costing income stalement for each quarner
