Hancock Company manufactures and sells two lines of furniture, case goods and upholstery. During the most recent accounting period, the Case Goods and Upholstery Divisions sold 15,000 and 2,000 units, respectively. The company's most recent financial statements are shown below (Do not round intermediate calculations.): If unit sales for both divisions increased 10%, the company would report which of the following?
$\begin{array}{|l|r|r|}
\hline&\text { Case Goods}& \text {Upholstery }\
\hline \text { Sales } & \$ 1,600,000 & \$ 400,000 \
\hline \text { Less cost of goods sold } & & \
\hline \text { Unit-level production cost } & 1,000,000 & 240,000 \
\hline \text { Depreciation, production equipment } & 240,000 & 60,000 \
\hline \text { Gross margin}&\$360,000&\$100,000\
\hline \text { Less operating expenses:}\
\hline \text { Unit-level selling and admin. Costs}&60,000&50,000\
\hline \text { Corporate-level facility expenses (fixe d)}&\underline{52,000}&\underline{52,000}\
\hline \text { Net income (loss)}&\underline{\$248,000}&\underline{\$(2,000)}\
\hline
\end{array}$ The word "Costs" should not be capitalized mid-way down. Also, change "admin." to:
Administrative
The cell should read:
Unit-level selling and administrative costs

Question

Quizplus · Accepted Answer

If unit sales for both divisions increased by 10%, the Upholstery Division would sell 2,200 units. The additional 200 units would generate $40,000 in sales (200 units x $200 per unit) and incur $24,000 in unit-level production costs (200 units x $120 per unit) and $5,000 in unit-level selling and administrative costs (200 units x $25 per unit). This results in an additional $11,000 in net income, turning the initial $2,000 loss into a $9,000 net income.

Hancock Company Manufactures and Sells Two Lines of Furniture, Case