11 May DID MR. ROSEN IMPROVE HIS PERFORMANCE FOR THE SECOND QUARTER?
The sales forecast for the second quarter is
25,000 units. Mr. Rosen had budgeted second quarter production at 25,000 units
but changes it to 50,000 units, which is total capacity for a quarter. The
sales forecasts for each of the last two quarters of the year remain at 25,000
units. Actual fixed costs incurred remain constant in total and variable costs
remain constant on per unit basis.
Computations:
Convert the divisional absorption income statement to a
contribution margin income statement for the quarter.
Prepare absorption and contribution margin income statements for
the succeeding quarter for the division.
Compute production costs per unit for both approaches and for
both quarters.
Discussion:
Did Mr. Rosen improve his performance for the second quarter?
Indicate the information you used for your assessment.
Can you make any suggestions for reporting in the future?
Do you think Mr. Rosen should be seriously considered for the
CEO position? Why or why not?
Discuss three shortcomings of the absorption approach for
internal decision-making.
All divisions use standard absorption costing.
The division has the capacity to produce 50,000 units a quarter and quarterly
fixed overhead amounts to $600,000. Mr. Rosen has been looking at the report
for the first three months of the year and is not happy with the results.Division Income
Statement For the Quarter
Ending March 31, 2013Production: 25,000 units Sales (25,000 units) $2,500,000Cost of goods sold 1,800,000Gross profit $700,000Selling & general expenses 350,000Net income $350,000The sales forecast for the second quarter is
25,000 units. Mr. Rosen had budgeted second quarter production at 25,000 units
but changes it to 50,000 units, which is total capacity for a quarter. The
sales forecasts for each of the last two quarters of the year remain at 25,000
units. Actual fixed costs incurred remain constant in total and variable costs
remain constant on per unit basis.Computations:
Convert the divisional absorption income statement to a
contribution margin income statement for the quarter.
Prepare absorption and contribution margin income statements for
the succeeding quarter for the division.
Compute production costs per unit for both approaches and for
both quarters.Discussion:
Did Mr. Rosen improve his performance for the second quarter?
Indicate the information you used for your assessment.
Can you make any suggestions for reporting in the future?
Do you think Mr. Rosen should be seriously considered for the
CEO position? Why or why not?
Discuss three shortcomings of the absorption approach for
internal decision-making.
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