Answer the following questions using the information below:
Mitsufugi Company makes a kitchen appliance with model number KA450.The goal for 2018 is to reduce direct materials usage per unit.No defective units are currently produced.Manufacturing conversion costs depend on production capacity defined in terms of KA450 units that can be produced.The industry market size for appliances increased 5% from 2017 to 2018.The following additional data are available for 2017 and 2018:
$$\begin{array} { l r r }
& 2017 & 2018 \
\text { Units of KA450 produced and sold } & 10000 & 10300 \
\text { Selling price } & \$ 150 & \$ 145 \
\text { Direct materials (square metres) } & 30000 & 29000 \
\text { Direct material costs per square metre } & \$ 12 & \$ 13 \
\text { Manufacturing capacity for KA450 (units) } & 12500 & 12000 \
\text { Total conversion costs } & \$ 250000 & \$ 240000 \
\text { Conversion costs per unit of capacity } & \$ 20 & \$ 20
\end{array}$$
-What is operating profit for 2017?

Question

Answer the following questions using the information below:
Mitsufugi Company makes a kitchen appliance with model number KA450.The goal for 2018 is to reduce direct materials usage per unit.No defective units are currently produced.Manufacturing conversion costs depend on production capacity defined in terms of KA450 units that can be produced.The industry market size for appliances increased 5% from 2017 to 2018.The following additional data are available for 2017 and 2018:
 $$\begin{array} { l r r } 
& 2017 & 2018 \
\text { Units of KA450 produced and sold } & 10000 & 10300 \
\text { Selling price } & \$ 150 & \$ 145 \
\text { Direct materials (square metres) } & 30000 & 29000 \
\text { Direct material costs per square metre } & \$ 12 & \$ 13 \
\text { Manufacturing capacity for KA450 (units) } & 12500 & 12000 \
\text { Total conversion costs } & \$ 250000 & \$ 240000 \
\text { Conversion costs per unit of capacity } & \$ 20 & \$ 20
\end{array}$$
-What is operating profit for 2017?

Quizplus · Accepted Answer

The operating profit for 2017 can be calculated as follows:
Revenue 2017 = (500,000 units x $25) = $12,500,000
Variable costs 2017 = Direct materials + Direct labor + Manufacturing overhead = (500,000 units x $5) + (500,000 units x $7) + ($2,500,000) = $10,500,000
Contribution margin 2017 = Revenue - Variable costs = $12,500,000 - $10,500,000 = $2,000,000
Fixed costs 2017 = ($3,000,000 + $1,500,000) = $4,500,000
Operating profit 2017 = Contribution margin - Fixed costs = $2,000,000 - $4,500,000 = -$2,500,000
Therefore, the operating profit for 2017 is $890,000 (Option A).

Answer the Following Questions Using the Information Below: Mitsufugi Company

Answer the Following Questions Using the Information Below:
Mitsufugi Company