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. Don’t 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 (20XX).
A B C D E
Units Sold 4,000 1,000 500 400 400
Unites Purchased 6,000 1,200 1,000 1,000 1,000
Resale Price $4.00 $12.00 $20.00 $45.00 $60.00
Cost $0.50 $4.00 $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
Common fixed expenses
Internet-related costs $10,000
Travel, etc. $4,000
Other overhead $5,000
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 4- or 5-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.
Theoretical What caused the monetary emergency that is clearing over the world? What is the part of obligation and use in causing resource showcase rises to shape and crumple? What keeps resource costs and loaning discouraged? What should be possible to cure matters? This paper will introduce a subjective audit of the part of obligation and use in causing resource showcase rises to shape and crumple in the land advertise under the setting of the worldwide money related emergency. Long-run causality seems to go from property costs to bank loaning. Writing Review The heading of causality between bank loaning and property costs The causality between bank loaning and property costs goes in the two headings. Property costs may influence bank loaning by means of different riches impacts (Hofmann, 2003). In the first place, because of money related market blemishes, family units and firms might acquire compelled. Subsequently, family units and firms can just acquire when they offer insurance, with the goal that their getting limit is a component of their collateralisable total assets. Since property is usually utilized as insurance, property costs are consequently an imperative determinant of the private area's obtaining limit. Second, an adjustment in property costs may significantly affect customers' apparent lifetime riches, prompting them to change their spending and getting plans and accordingly their credit request keeping in mind the end goal to cover utilization up the life cycle. At last, property costs influence the estimation of bank capital, both specifically to the degree that banks possess resources, and in a roundabout way by influencing the estimation of advances secured by property. Property costs along these lines impact the hazard taking limit of banks and in this way their ability to expand credits. The writing over the most recent couple of decades alluded to chance taking conduct of money related market members in the midst of bottomless liquidity, banks' use focusing on conduct and a portfolio genuine adjust impact of other monetary go-betweens. Monetary mediators, which must keep up a satisfactory proportion of cash-flow to resources, can be prevented from loaning, or actuated to move the structure of advances from bank-subordinate segments, for example, independent companies, by decreases in the estimations of the advantages they hold (Bernanke and Gertler, 2000). Bank loaning, then again, may influence property costs through different liquidity impacts. The cost of property can be viewed as an advantage value, which is dictated by the marked down future stream of property returns. An expansion in the accessibility of credit may bring down loan fees and empower present and future expected monetary action. Thus, property costs may rise in light of higher expected profits for property and a lower rebate factor. Property can likewise be viewed as a strong decent in briefly settled supply. An expansion in the accessibility of credit may build the interest for lodging if family units are obtaining obliged. With supply briefly settled in light of the time it takes to build new lodging units, this expansion sought after will be reflected in higher property costs. This potential two-path causality between bank loaning and property costs may offer ascent to commonly fortifying cycles in credit and property markets. An ascent in property costs, caused by more hopeful assumptions about future financial prospects, raises the acquiring limit of firms and family units by expanding the estimation of insurance. Some portion of the extra accessible credit may likewise be utilized to buy property, pushing up property costs considerably further, with the goal that a self-fortifying procedure may advance. Potential synchronization issues are controlled for the bearing of causality between bank loaning and property costs, as concentrated by Gerlach and Peng (2002). Bank loaning, which was changed into genuine terms by collapse with the CPI (shopper value file), is characterized as aggregate credit to the private non-bank division. Crosscountry examinations of the advancement of bank loaning are defective by contrasts in the meaning of aggregate credit crosswise over nations. These distinctions in definition will be reflected in the aftereffects of the exact examination. Contrasts exist, for instance, as for the treatment of non-performing advances (NPLs) in national credit totals. A drop in property costs will from one viewpoint negatively affect the augmentation of new advances. Then again, it will offer ascent to an expansion in NPLs. The assessed impact of property costs on bank loaning will in this manner rely upon whether banks are compelled to discount NPLs rapidly or not. For example, Japan and the Nordic nations (Denmark, Finland, Iceland, Norway and Sweden) experienced extreme saving money emergencies in the late 1980s or mid 1990s, which were gone before by a crumple in property costs. While NPLs were immediately purified from banks' asset reports in the Nordic nations, this was not the situation in Japan. To a more extensive view, bank loaning has contributed essentially to the land rise in Asia preceding the 1997 East Asian emergency. Quarterly private property value lists were accessible for all nations with the exception of Japan, Italy and Germany. For Japan and Italy, semi-yearly records were changed to quarterly recurrence by straight introduction. For Germany, a quarterly arrangement was produced by direct introduction in light of yearly perceptions from the principal quarter of every year. Keeping in mind the end goal to get a measure of genuine property costs, ostensible property costs were flattened with the CPI. Private property costs may not completely catch the property value improvements, which are pertinent for total bank loaning. Credit totals contain bank loaning to family units and ventures. The fitting measure of property costs for the exact investigation would thusly be total property value file, involving both private and business property costs. For most nations, the accessible business property value information are accessible just in yearly recurrence and speak to just value improvements in the biggest urban region of the nation. The utilization of these information in observational investigation is consequently very tricky. In the couple of nations where brilliant business property value information are accessible, for example, Japan, Hong Kong and Singapore, private and business property costs are firmly associated, recommending that private property costs may go about as an intermediary at overlooked business property costs in the exact examination. The fleeting genuine loan cost is estimated as the three months interbank currency showcase rate less four quarter CPI expansion. The transient genuine currency advertise rate fills in as an intermediary for genuine total financing costs. A more exact measure would be a total loaning rate. Agent loaning rates are, in any case, not accessible for generally nations. Experimental proof recommends that loaning rates are attached to currency advertise rates, inferring that currency showcase rates are a substantial estimation of financing costs. The worldwide monetary emergency and obligation blasts A chain of occasions, starting with surprising misfortunes in the U.S. subprime contract showcase, was bound to convey the worldwide money related framework near fall and to drag the world economy into retreat. In the fallout of the Global Financial Crisis in the vicinity of 2007 and 2009, business analysts have given careful consideration to the part of obligation and use in causing resource advertise rises to frame and crumple. For example, the benefit value swelling and rising influence for the United States exemplified about every one of the indications of a nation nearly a budgetary emergency in fact, an extreme one. At that point, we find that advantage showcase breakdown are profound and delayed. Clearly, the straightforward worldwide managing an account framework demonstrates that the primary driver of obligation blasts isn't the extensively basically esteemed expenses of safeguarding and recapitalizing. Fundamentally, the urgent drivers of obligation increments are the unavoidable fall in assess incomes that administrations endure in the wake of profound and delayed yield withdrawals, and also frequently aggressive countercyclical monetary approaches went for alleviating the downturn. Firms' private venture and resource showcase valuation are adversely connected with their best moneylender's land presentation. Worldwide firms have an adaptable normal and they can get the use advertise, so there is a deft approach about it. The trademark gigantic developments in government obligation are driven primarily by sharp falloffs in charge income and, in numerous situations, huge surges in government spending to battle the retreat, pronounced by Reinhard and Rogoff (2008). The ascent in genuine government obligation in the three years takes after a saving money emergency, having a tendency to detonate with an ascent at a normal of 86% in the significant post-World II scenes (Reinhard and Rogoff, 2008). Utilizing the cash measure of getting from the banks is the measure of credit accessible to the firm. Lang, Ofek, and Stulz (1996) locate that future development and venture are adversely identified with use, particularly for land firms with high obligation proportions. In the current monetary foundation, the impacts of firms' guarantee misfortunes may likewise rely upon firm use, with exceptionally utilized firms contributing less owning to all the more restricting acquiring requirements. Hofmann (2003) recommends that property value cycles, reflecting changing convictions about future monetary prospects, drive credit cycles, instead of unnecessary bank loaning being the reason for property value bubbles. Most resource classes have subsidiary markets. Proficient financial specialists accept that property subordinates advertise worked property, and the deleveraged REIT returns are firmly connected to hidden market. Land put resources into land obligation (in actuality deleveraging), utilize subordinate exchanges for liquidity or utilize long-short exchanging to take positions on showcase perspectives, and need to purchase land by any stretch of the imagination. Buyer gets minimal effort, differentiated returns without alpha. Dealer supports fundamental resources or reinvests income.>GET ANSWER