ACC501Preparation of an Income Statement for The Serious ReaderCompanyThe first case of this course provides an opportun...
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ACC501
Preparation of an Income Statement for The Serious Reader
Company
The first case of this course provides an opportunity to prepare a
segmented variable costing (contribution margin, behavioral)
income statement and analyze the information. This is a very small
company and the information may seem simplistic at first glance.
Donât forget that numbers and hands-on practice best illustrate
many basic accounting concepts.
The Serious Reader Company is a small online retailer operating
out of a garage apartment. The owner buys books at garage sales,
thrift shops, library sales, and whenever an opportunity arises. The
company classifies all books into five categories based on cost of
acquisition and estimated sales price. See below for details about
books purchased and sold during the last year (201X).
Price Categories
A
B
C
D
E
Units Sold
2,000
1,000
500
400
400
Units Purchased
3,000
1,200
1,000
1,000
1,000
Resale Price
$4.00
$15.00
$25.00
$45.00
$40.00
Cost
$0.50
$5.00
$10.00
$20.00
$20.00
In addition to purchasing inventory (used books), the company
incurs some operating expenses.
Variable operating expenses
Shipping per book
$ 1.50
Fixed expenses
Internet-related costs
$5,000
Travel, etc.
2,000
Advertising
1,000
Other overhead
3,000
Required:
Computations (use Excel)
Prepare a segmented variable costing (behavioral) income statement
for the company in good format.
Prepare a second variable costing statement assuming 90% of all the
books in each category purchased were actually sold.
Prepare a third variable costing statement assuming that the price is
increased by 50% for all five categories (use original sales information).
The owner enjoys the used-book business. Any suggestions as how to
turn this into a full-time business venture so the owner can quit his
other job? Prepare another income statement to support your idea.
Memo (use Word)
Interpret the results from the computations and explain how the
information is useful. Write a four or five paragraph memo to the
owner of the business. Start with an introduction and end with a
recommendation. Each of the four or five paragraphs should have a
heading.
Short essay to comment on the questions below (use Word).
Start with an introduction and end with a summary or conclusion.
Use headings. Maximum length of two pages.
Why do many organizations make the effort to prepare a different type
of income statement for internal purposes?
Variable costing is not just about preparing income statements. Provide
at least three scenarios in which understanding how costs behave is
useful.
Assignment Expectations
Each submission should include two files: (1) An Excel file; and (2) A
Word document. The Word document shows the memo first and
short essay last. Assume a knowledgeable business audience and
use required format and length. Individuals in business are busy and
want information presented in an organized and concise manner.
Preparation of an Income Statement for The Serious Reader
Company
The first case of this course provides an opportunity to prepare a
segmented variable costing (contribution margin, behavioral)
income statement and analyze the information. This is a very small
company and the information may seem simplistic at first glance.
Donât forget that numbers and hands-on practice best illustrate
many basic accounting concepts.
The Serious Reader Company is a small online retailer operating
out of a garage apartment. The owner buys books at garage sales,
thrift shops, library sales, and whenever an opportunity arises. The
company classifies all books into five categories based on cost of
acquisition and estimated sales price. See below for details about
books purchased and sold during the last year (201X).
Price Categories
A
B
C
D
E
Units Sold
2,000
1,000
500
400
400
Units Purchased
3,000
1,200
1,000
1,000
1,000
Resale Price
$4.00
$15.00
$25.00
$45.00
$40.00
Cost
$0.50
$5.00
$10.00
$20.00
$20.00
In addition to purchasing inventory (used books), the company
incurs some operating expenses.
Variable operating expenses
Shipping per book
$ 1.50
Fixed expenses
Internet-related costs
$5,000
Travel, etc.
2,000
Advertising
1,000
Other overhead
3,000
Required:
Computations (use Excel)
Prepare a segmented variable costing (behavioral) income statement
for the company in good format.
Prepare a second variable costing statement assuming 90% of all the
books in each category purchased were actually sold.
Prepare a third variable costing statement assuming that the price is
increased by 50% for all five categories (use original sales information).
The owner enjoys the used-book business. Any suggestions as how to
turn this into a full-time business venture so the owner can quit his
other job? Prepare another income statement to support your idea.
Memo (use Word)
Interpret the results from the computations and explain how the
information is useful. Write a four or five paragraph memo to the
owner of the business. Start with an introduction and end with a
recommendation. Each of the four or five paragraphs should have a
heading.
Short essay to comment on the questions below (use Word).
Start with an introduction and end with a summary or conclusion.
Use headings. Maximum length of two pages.
Why do many organizations make the effort to prepare a different type
of income statement for internal purposes?
Variable costing is not just about preparing income statements. Provide
at least three scenarios in which understanding how costs behave is
useful.
Assignment Expectations
Each submission should include two files: (1) An Excel file; and (2) A
Word document. The Word document shows the memo first and
short essay last. Assume a knowledgeable business audience and
use required format and length. Individuals in business are busy and
want information presented in an organized and concise manner.
