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Rayburn Co. manufactures and sells glow in the dark phone cases. Terry Andreikowski, the president of the Rayburn Co has a hard time understanding the
Rayburn Co. manufactures and sells glow in the dark phone cases. Terry Andreikowski, the president of the Rayburn Co has a hard time understanding the accounting in his firm. Yesterday morning, he was very confused when he received mail from his accountant, Julia Omberg. She sent him the following income statements: FebruaryMarch Sales revenue 25000 Cost of goods sold Gross prolit Rent expense Wages expense Shipping expense Utilities eopense Advertising expenee Insurance expense Operating income 37,500 000002S0 5,000 15,000 1,500 1,500 5,000 1,875 1,250 121 - Terry was somewhat frustrated and said "Last month, we sold 1,000 glow in the dark phone cases and earned $6,850 in operating income. This month, when we sold 1,500 cases, I thought we'd make S10,275. This income statement shows an operating income of S12,100! How can I ever make any plans when I can't even predict my income? This accounting non sense is too confusing! I will give Julia one last chance to explain to me what's going on." "Can you please try to explain this operating income non-sense to me once more?" Terry asked Julia on the phone. Terry said: "After I saw last month's income statement, I thought each glow in the dark case generated S6.85 in net income; now this month each one generates S8.07! No changes took place in the cost of each case, so why does this change in operating income happen? If I had known I was going to have a higher operating income, I would've looked more seriously at adding to our product line!" After patiently listening to Terry's blab, and taking a deep breath, Julia answers: "Of course, Terry. Let me explain to you again how you made so much more operating income than what you were expecting
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