Spencer Company recently became aware of the large total discounts on its orders and would like to know the impact on profit. The company computed its operating profit as follows:
Added by Nicole G.
Step 1
Let's think step by step. Show more…
Show all steps
Your feedback will help us improve your experience
Akash M and 91 other Principles of Accounting educators are ready to help you.
Ask a new question
Labs
Want to see this concept in action?
Explore this concept interactively to see how it behaves as you change inputs.
Recommended Videos
calculate the operating profit (before taxes)
Akash M.
6) A clothing retailer buys winter coats from one of its suppliers for $67.50. The regular selling price of the coats includes operational expenses of 46% of the selling price and a profit of 30% of the selling price. Due to an unexpectedly warm winter, the sales have been slow. The retailer decides to mark down this line of coats by 20% to increase sales. What is the operating profit or loss on the coats sold during the promotional sale?
Mauya M.
Rowe Tool and Die (RTD) produces metal fittings as a supplier to various manufacturing firms in the area. The following is the forecasted income statement for the next quarter, which is the typical planning horizon used at RTD. RTD expects to sell 59,000 units during the quarter. RTD carries no inventories. Amount Per Unit Sales revenue $ 1,781,800 $ 30.20 Costs of fitting produced 1,345,200 22.80 Gross profit $ 436,600 $ 7.40 Administrative costs 312,700 5.30 Operating profit $ 123,900 $ 2.10 Fixed costs included in this income statement are $383,500 for depreciation on plant and machinery and miscellaneous factory operations and $101,500 for administrative costs. RTD has received a request for 10,000 fittings to be produced in the next quarter from Endicott Manufacturing. Endicott has never purchased from RTD, although they have been a local company for many years. Endicott has offered to pay $21.40 per unit. RTD can easily produce the 10,000 units with its existing capacity. Production of the 10,000 units will incur all variable manufacturing costs but no fixed manufacturing costs. No administrative costs will be incurred because of the order. Required: a. What impact would accepting this special order have on operating profit? b. Should RTD accept the order? What impact would accepting this special order have on operating profit? (Enter your answers in thousands rounded to 1 decimal place. (i.e., 5,400,400 should be entered as 5,400.4). Select option "higher" or "lower", keeping Status Quo as the base. Select "none" if there is no effect.) Costs and Revenues (Thousands of Dollars) Status Quo 59,000 Units Alternative 69,000 Units Difference Sales revenue $ 1,781,800.0 $ 1,995,800.0 $ 214,000.0 Variable costs: Production 961,700.0 1,124,700.0 163,000.0 Administrative 211,200.0 247,020.0 35,820 Contribution margin $ 608,900.0 $ 624,080.0 $ 15,180.0 Fixed costs 485,000.0 485,000.0 0 Operating profit $ 123,900.0 $ 139,080.0 $ 15,180.0
Recommended Textbooks
Horngren’s Cost Accounting
Cost Accounting A Managerial Emphasis
Principles of Accounting Volume 1: Financial Accounting
Transcript
18,000,000+
Students on Numerade
Trusted by students at 8,000+ universities
Watch the video solution with this free unlock.
EMAIL
PASSWORD