Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

The results of operations for the Covington Bug Spray Manufacturing Company for the fourth quarter of 2017 were as follows (in thousands): Sales of bug

image text in transcribedimage text in transcribed

The results of operations for the Covington Bug Spray Manufacturing Company for the fourth quarter of 2017 were as follows (in thousands):

Sales of bug spray

$560,000Less variable cost of goods sold

313,600Contribution margin

246,400

Less fixed bug removal costs

$78,400

Less fixed selling and administrative expenses

33,600112,000Income before taxes

134,400Less taxes on income

53,760Net income

$80,640

Note:Covington 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 2017 was as follows (in thousands):

Assets:

Cash

$31,500Accounts receivable

280,000Total current assets

311,500

Fixtures and equipment

$130,000Less accumulated depreciation

80,00050,000Total assets

$361,500

Liabilities and owners' equity:

Accounts payable

$62,720Retained earnings

189,980Common stock

108,800Total liabilities and owners' equity$361,500

Additional information:

1.Sales and variable costs of sales are expected to increase by 5 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, 41 percent direct labor, and 19 percent variable overhead. Materials are purchased on credit. 50 percent are paid for in the quarter of purchase, and the remaining amount is paid for in the quarter after purchase. There is no inventory. Also, direct labor and variable overhead costs are paid in the quarter the expenses are incurred.4.Fixed bug removal costs (other than $4,730 of depreciation expense) are expected to increase by 1.50 percent. Fixed bug removal costs requiring payment are paid in the quarter they are incurred.5.Fixed selling and administrative costs (other than $2,990 of depreciation expense) are expected to increase by 2 percent. Fixed selling and administrative costs requiring payment are paid in the quarter they are incurred.6.The tax rate is expected to be 40 percent. All taxes are paid in the quarter they are incurred.

7.No purchases of fixtures or equipment are expected in the first quarter of 2018.

image text in transcribedimage text in transcribedimage text in transcribed

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Accounting Tools For Business Decision Making

Authors: Paul D. Kimmel, Jerry J. Weygandt, Donald E. Kieso

7th Edition

1-119-57105-6, 978-1119571056

More Books

Students also viewed these Accounting questions

Question

Speak clearly and distinctly with moderate energy

Answered: 1 week ago

Question

Get married, do not wait for me

Answered: 1 week ago