Question

3.

EASTDALE INDUSTRIES INC.

STATEMENT OF INCOME

FOR THE YEAR ENDED MARCH 31, 2020

                                                                                                   2020                            2019  

Sales revenue                                                                      $1,095,000                $750,000

Cost of goods sold                                                                  635,100                  435,000

Gross profit                                                                               459,900                 315,000

Expenses

   Depreciation                                                                             29,520                     24,000

   Office supplies                                                                           2,200                       1,600

   Salaries and benefits                                                            112,850                 102,500

   Rent                                                                                           18,000                     18,000

   Utilities                                                                                     27,192                    20,200

                                                                                                   189,762                 166,300

Operating income                                                                     270,138                 148,700

Income tax expense                                                                              59,430                    32,714      

Net income                                                                            $   210,708                $ 115,986

Additional information:

Unit sales for 2020 and 2019 were 8,760 and 6,000 units, respectively.

Required:

5          a) For each cost in the above income statement, identify whether the cost is fixed, variable and mixed with respect to sales volume, and explain how this was determined.

1          b) Determine a reasonable cost driver for income tax expense. That is, what is the nature of the activity that would cause income tax expense to vary?

2          c) Select one mixed cost and prepare a scattergraph. From the scattergraph, use the visual fit method to determine the total fixed cost and variable cost per unit.

6          d) For the remaining mixed costs, determine the fixed and variable component of each cost using the high-low method. Why is the preparation of a scattergraph of no benefit given the information you have available?

2          e) Based on your knowledge of depreciation methods from financial accounting, give a reasonable explanation of the cost structure of depreciation expense that you have identified earlier.

7          f) Using a contribution format, prepare a budgeted income statement for 2021 if 9,600 units are expected to be sold. Stop at the calculation of operating income, so no income tax expense need be calculated.

Answer 1

Answer :-

5 A. In the Above Income Statement identify the, COGS is variable cost with Regard sale volume as it will increase with every sale and Conversely.

1. Depriciation , office Supplies, Salaries, Rent, are fixed cost as it will not change pertaining to changes in sales volume.
2. Utilites is mixed cost. on condition that require production and that part will be fixed which will not have impact due to Sales volume.

1 B. Icome tax expense is payable on the profit. either Company makes profit or decrease expenses that the icome tax is more and comapny make losses then it will not pay income tax.

2 E. BAsed on the cost structure of depriciation expense that assume Straight line method of depriciation.

7 F.

Budgeted Income Statment For 2021 ( 9600 Unites )
Sales 9600*125	1200000
COGS 9600*7.25	69600
Gross Profit	1130400
Depriciation	29520
Office Supplies	2200
SALARIES	112850
RENT	18000
Utilities	27192
Opreating Income	940638