Chipset-Chapter-13

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					Problem for Self Study
Strategic analysis of operating income.

Original Data                                           2007                             2008
1. Units of KE8 produced and sold                     40,000   Pieces                  42,000
2. Average selling price                            $100.00                          $110.00
3. Direct Materials                                  120,000   square feet            123,000
4. Direct Materials Cost                             $10.00    per sq ft              $11.00
5. Manufacturing capacity                             50,000   units                   50,000
6. Conversion Cost                               $1,000,000                       $1,100,000
7. Conversion cost / capacity                        $20.00                           $22.00
8. Customer Capacity                                      30                               29
9. Total Cost of Customer Capacity                 $720,000                         $725,000
10 Cost per Customer                                $24,000                          $25,000

Income Statement                                         2007                           2008
  Revenue                                          $4,000,000                     $4,620,000
  Cost of Goods                                     1,200,000                      1,353,000
   Margin                                           2,800,000                      3,267,000
  Operating Expenses:
   Selling and Customer Service Costs               1,000,000                     1,100,000
   Purchasing and Administrative Costs                720,000                       725,000
    Total Operating Expense                         1,720,000                     1,825,000
Operating Income                                    1,080,000                     1,442,000
    Change in Operating Income - Favorable or (Unfavorable)   $         362,000 (F)


Profitability Analysis:
Change in Operating Income from Growth                         $        140,000

Sales Effect of Price-Recovery                                 $        420,000 (F)


Change in operating income due to price recovery               $     (256,000) (U)

Change in Productivity Component Cost                          $         58,000 (F)

Operating Income Prior Year                                    $    1,080,000
 Growth Component                                                     140,000     (F)
 Price-Recovery Revenue Component                                     420,000     (F)
 Price-Recovery Cost Component                                       (256,000)    (U)
 Productivity Component                                                58,000     (F)
 Change in All Components                                             362,000     (F)
Operating Income Current Year                                  $    1,442,000
           Chipset Inc.
           Strategic analysis of operating income.

            Original Data                                    2010                            2011
           1. Units of CX1 produced and sold                1,000,000                      1,150,000
           2. Average selling price                            $23.00                         $22.00
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           3. Direct Materials                              3,000,000                      2,900,000
           4. Direct Materials Cost                             $1.40                          $1.50     Exhibit 13-3               Revenue &     Revenue &
           5. Manufacturing capacity                        3,750,000                      3,500,000      Page 483         Income   Cost Effects Cost Effects of    Cost Effect of    Income
           6. Conversion Cost                             $16,050,000                    $15,225,000                     Statement   of Growth Price-Recovery        Productivity   Statement
           7. Conversion cost / capacity                        $4.28                          $4.35                      Amounts   Component     Component          Component       Amounts
                                                                                                                          in 2010     in 2011       in 2011            in 2011       in 2011
           Income Statement                                   2010                          2011                             (1)         (2)           (3)                (4)           (5)
            Revenue                                       $23,000,000                  $25,300,000     Revenues         $23,000,000 $3,450,000     ($1,150,000)     $         -    $25,300,000
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            Direct Materials                                4,200,000                     4,350,000    Cost              20,250,000  ($630,000)      ($607,500)     $ 1,912,500 $20,925,000
             Conversion Cost                               16,050,000                    15,225,000    Operating Income  $2,750,000 $2,820,000     ($1,757,500)       $1,912,500    $5,725,000
               Total Operating Expense                     20,250,000                    19,575,000                       2,750,000                                                  5,725,000
           Operating Income                                 2,750,000                     5,725,000    Change in Income          -         -         2,975,000     (F)                      -
               Change in Operating Income - Favorable or (Unfavorable)   $   2,975,000 (F)


           Profitability Analysis:
           Revenue & Cost Effects of Growth Component                    $ 2,820,000 (F)
           Revenue Effect of Price-Recovery Component                    $ (1,150,000) (U)
           Cost Effect of Price-Recovery Component                       $   (607,500) (U)
           Cost Effect of Productivity Component Cost                    $ 1,912,500 (F)

           Operating Income Prior Year                                   $  2,750,000
            Growth Component                                                2,820,000    (F)
            Price-Recovery Revenue Component                               (1,150,000)   (F)
            Price-Recovery Cost Component                                    (607,500)   (U)
            Productivity Component                                          1,912,500    (F)
            Change in All Components                                        2,975,000    (F)
           Operating Income Current Year                                 $ 5,725,000

           Cost of unused capacity                                       $   3,697,500

				
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posted:10/26/2011
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