Westerville Company reported the following results from last year’s operations: Sales $ 1,000,000 Variable expenses 300,000 Cont
ribution margin 700,000 Fixed expenses 500,000 Net operating income $ 200,000 Average operating assets $ 625,000 At the beginning of this year, the company has a $120,000 investment opportunity with the following cost and revenue characteristics: Sales $ 200,000 Contribution margin ratio 60 % of sales Fixed expenses $ 90,000 The company’s minimum required rate of return is 15%. Foundational 10-1 Required: 1. What is last year’s margin?
1 answer:
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Answer:
$546,750
Explanation:
Sales 2,498,000
COGS (1,376,000)
gross profit 1, 112,000
S&A salaries (219,000)
other S&A (346,000)
underapplied MO (10,250) *
net income 536.750
*we need to compare the actual voerhead with the applied overhead:
<u>actual overhead:</u> 176,000 + 420,000 = 596,000
<u>applied overhead:</u>
overhead rate:
568,000 / 32,000 = 17.75
33,000 x 17.75 = 585.750
overhead
<u>debit credit</u>
596,000 585,750
10,250 underapplied overhead
As the applied was lower it is underapplied we need to recognzie more cot thus, the net income decrease.