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Problem 10-2 (Part Level Submission) The results of operations for the Garret Bug Spray Manufacturing Company for the fourth quarter of 2014 were as follows

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Problem 10-2 (Part Level Submission) The results of operations for the Garret Bug Spray Manufacturing Company for the fourth quarter of 2014 were as follows (in thousands) $560,000 313,600 246,400 Sales of bug spray Less variable cost of goods sold Contribution margin Less fixed bug removal costs Less fixed selling and administrative expenses Income before taxes Less taxes on income Net income S78,400 33,600112,000 134,400 53,760 80,640 Note: Garret uses the variable costing method. Thus, only variable costs are included in the cost of goods sold. Fixed costs are charged to expense in the period incurred The company's balance sheet as of the end of the fourth quarter of 2014 was as follows (in thousands): s 26,960 Accounts receivable Total current assets Fixtures and equipment $125,000 80,000 45,000 Total assets Liabilities and owners' equity: Accounts payable Retained earnings Common stock $50,176 194,684 Total liabilities and owners' equity $351,960 Additional information 1. Sales and variable costs of sales are expected to increase by 6 percent in the next quarter 2. All sales are on credit with 50 percent collected in the quarter of sale and 50 percent collected in the following quarter 3. Variable cost of sales consists of 40 percent materials, 40 percent direct labor, and 20 percent variable overhead. Materials are purchased on credit. 60 percent are paid for in the quarter of purchase, and the remaining amount is paid for in the quarter after 4. Fixed bug removal costs (other than $4,000 of depreciation expense) are expected to increase by 2 percent. Fixed bug removal costs 5. Fixed selling and administrative costs (other than $2,000 of depreciation expense) are expected to increase by 2 percent. Fixed selling 6. The tax rate is expected to be 40 percent. All taxes are paid in the quarter they are incurred purchase. There is no inventory. Also, direct labor and variable overhead costs are paid in the quarter the expenses are incurred. requiring payment are paid in the quarter they are incurred. and administrative costs requiring payment are paid in the quarter they are incurred 7. No purchases of fixtures or equipment are expected in the first quarter of 2015

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