Jokkmok Industries-Mr. Rosen is the manager of a division of Jokkmok Industrie

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Description

Jokkmok Industries

Mr. Rosen is the manager of a division of
Jokkmok Industries. He is one of several managers being considered for the
position of CEO, as the current CEO is retiring in a year.

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, 2013

Production: 25,000 units

Sales (25,000 units)

$2,500,000

Cost of goods sold

1,800,000

Gross profit

$700,000

Selling & general expenses

350,000

Net income

$350,000

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.

Case Assignment

Required:

Computations:

·
Convert the divisional absorption income statement to a
contribution margin income statement for the quarter. showing how to convert from one approach to another. This
example is for guidance only and the numbers have no bearing on Jokkmok
Industries. You can also find several videos on YouTube that explain the
difference between the two types of income statements.

·
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.

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