Why did Mamoun company improve profitability during the period January 1 to June 30, 2015? How useful was the data in Exhibit 4 for the purpose of this analysis?
Exhibit 1 income statement for year ending December 31, 2014 (in thousands) Gross sales Cash Discount $105,905 (1.567) Net Sales Cost of Manufacturing $104,338 (65,251) $39,087 Gross profit Less: Selling Expense General Administration Depreciation $18,383 6,534 13,591 Operating Profit Plus: Other Income (38,508) $579 205 Net Profit before Interest Less: Interest $784 (1,472) Net Income ($688) Exhibit 2 Analysis of income statement by products and departments-Year ended December 31, 2014 (thousands $ except per 100 Kilograms.) Product A Per 100 kgs. Product B Per 100 kgs. Product C Per 100 kgs. Classification Direct Indirect Total Allocation Basis X X Cubic space Area Value of equipment Direct labor ($) Direct labor ($) Machine horsepower Area Area X Rent Property Taxes Property Insurance Compensation Insurance Direct Labor Indirect Labor Power Light & Heat Building Service Materials Supplies Repairs Total Selling Expense General Administrative Depreciation Interest Total Cost Less: Other Income $ 1,872 621 524 836 12,937 4,413 220 158 109 7641 525 184 $30,040 9,100 3,451 5,659 524 $48,774 101 $48,673 51,672 $2,999 2,132,191 $24.50 1.08% $.88 .29 .25 .39 6.06 2.07 .11 .07 .05 3.59 .25 .08 $14.09 4.27 1.62 2.65 .25 $22.88 .04 $22.84 24.24 $1.40 $1,570 503 405 439 6,107 2,124 251 130 82 4,716 485 150 $16,962 4,582 1,300 4,274 409 $27,527 53 $27,474 25,996 (1,478) 1,029,654 $25.80 2.14% $1.53 .49 .39 42 5.92 2.06 .24 .12 .08 4.58 .46 .15 $16.44 4.44 1.26 4.16 .39 $26.69 .05 $26.64 25.23 ($1.41) $1,882 401 534 458 6,879 2,309 302 106 75 4,851 350 104 $18,251 4,701 1,783 3,658 539 $28,932 51 $1.90 .40 .53 .46 6.97 2.33 .31 .10 .08 4.91 .36 .10 $18.45 4.76 1.80 3.70 .53 $29.24 .05 $29.19 27.03 ($2.16) X X $5,324 1,525 1,463 1,733 25,921 8,846 773 394 266 17,208 1,360 438 $65,253 18,383 6,534 13,591 1,472 $105,233 205 X X $ Value of sales $ Value of sales Value of equipment Value of equipment $ Value of sales $105,028 104,338 ($690) Sales (Net) Profit (Loss) Unit Sales (100 kgs.) Quoted Selling Price Per Unit Cash Discount Taken (% of Selling Price) $28,881 26,670 ($2,211) 986,974 $27.50 1.74% 1.48% Exhibit 4 Income statement by products and departments at standard and total company variances from January 1 to June 30, 2015 (Thousands $ except per 100 kgs.) Item Product A Standard Total at Per 100 kgs. Standard Product C Standard Total at Per 100 kgs. Standard Total Actual $952 201 266 231 3,496 1,168 155 Rent $.88 $877 Property Tax .29 289 Property Insurance .25 249 Compensation Insurance 39 389 Direct Labor 6.06 6,041 Indirect Labor 2.07 2,063 Power .11 109 Light & Heat .07 70 Building Service .05 50 Materials 3.59 3,579 Supplies .25 239 Repairs .08 79 Total $14.09 $14,034 Selling Expense 4.27 4,257 General Administrative 1.62 1,615 Depreciation 2.65 2,642 Interest .25 249 Total Cost $22.88 $22,797 Less: Other Income .04 40 $22.84 $22,757 Actual Sales (net) 24.24 24,164 Profit (Loss) $1.40 $1,407 Unit Sales (100 kgs.) 996,859 a: Actual unit sales times standard net revenue per unit Product B Standard Total at Per 100 kgs. Standard $1.53 $1,090 .49 349 .39 278 .42 299 5.92 4,216 2.06 1,467 .24 171 12 85 .08 57 4.58 3,216 .46 328 .15 $16.44 $11,663 4.44 3,162 1.26 897 4.16 2,962 .39 278 $26.69 $18,962 .05 36 $26.64 $18,926 25.23 17,961 ($1.41) ($965) 712,102 $1.90 .40 .53 .46 6.97 2.33 .31 .10 .08 4.91 .36 .10 $18.45 4.76 1.80 3.70 .53 $29.24 .05 $29.19 27.03 ($2.16) 501,276 107 Total Standard $2,919 839 793 919 13,753 4,698 435 205 147 9,256 747 236 $34,947 9,805 3,414 7,459 793 $56,418 101 $56,317 55,675 ($642) 50 40 2,461 180 50 $9,250 2,386 902 1,855 266 $14,659 25 $14,634 13,550 ($1,084) $2,660 770 732 917 13,820 4,485 432 200 107 9,282 750 251 $34,406 9,830 3,289 6,817 730 $55,072 110 $54,962 55,675 $713 Exhibit 3: Accounting Department's Commentary on Costs Direct Labor: Variable. Union shop at going community rates. No abnormal demands foreseen. It may be assumed that direct labor dollars are an adequate measure of capacity utilization. Compensation Insurance: Variable. Five percent of direct and indirect labor is an accurate estimate. Materials: Variable. Exhibit 2 figures are accurate. Includes waste allowances. Purchase are at market prices. Power: Variable. Rates are fixed. Use varies with activity. Averages per Exhibit 2 are accurate. Supplies: Variable. Exhibit 2 figures are accurate. Supplies bought at market prices. Repairs: Variable. Varies as volume changes within normal operation range. Lower and upper limits are fixed. General Administrative, Selling Expense, Indirect Labor, Interest, and Other income: These items are almost non-variable. They can be changed, of course, by management decision. Cash Discount: Almost non-variable. Average cash discount taker are consistent from year to year. Percentages in Exhibit 2 are accurate. Light and Heat: Almost non-variable. Heat varies slightly with fuel cost changes. Light a fixed item regardless of level of production. Property Taxes: Almost non-variable. Under the lease terms superior pays the taxes; assessed valuations have been constant; the rate has risen slowly. Any change in the near future will be small and independent of production volume. Rent: Non-variable. Lease has 12 years to run Building service: Non-variable. At normal business level, variances are small. Property Insurance: Non-variable. Three-year policy with fixed premium. Depreciation: Non-variable. Fixed dollar total
