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Pages:
4 pages/≈1100 words
Sources:
4 Sources
Style:
APA
Subject:
Accounting, Finance, SPSS
Type:
Case Study
Language:
English (U.S.)
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MS Word
Date:
Total cost:
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Topic:

Accounting Cost Systems and Cost Behavior: Turning the Company Into a Full-Time Business Venture

Case Study Instructions:

ACCOUNTING COST SYSTEMS AND COST BEHAVIOR
Assignment Overview
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).
Variable Operating Expenses
Shipping per book $1.75
Common fixed expenses
Internet-related costs $18,000
Travel $5,800
Advertising $17,800
Other overhead $9,400
In addition to purchasing inventory (used books), the company incurs some operating expenses.
Price Categories
A B C D E
Units Sold 4,000 1,800 500 150 600
Units Purchased 6,000 6,000 1,000 1,000 1,200
Resale Price $5 $12 $15 $50 $70
Cost $2 $5 $10 $15 $25
Case Assignment
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 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.
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.

Case Study Sample Content Preview:

Accounting Cost Systems and Cost Behavior: A Case of The Serious Reader Company
Student Name
University
Course
Professor Name
Date
Accounting Cost Systems and Cost Behavior: A Case of The Serious Reader Company
Memorandum
Date: May 3, 2023
To: The Serious Reader Company Owner
From: The Financial Advisor
Subject: Turning the Company into a Full-Time Business Venture
Introduction
Firms require to use various approaches to assist them in making profits. For instance, your Company made a net loss when it sold books at their original sales information. However, the business began realizing net incomes when you used strategies, such as increasing the books’ prices by 50%. Therefore, a well-defined tactic is essential to your organization’s success.
Results Interpretation
The income statement using the original sales information shows a net loss of $3,987.50. On the other hand, when your Company increased the units it sold to 90% of its purchases, the income statement showed a net income of $63,660. The sales volume increase improved your Company’s performance by $67,647.50. When you increased the sales price by 50%, the income statement showed a net income of $45,312.50. Therefore, the increase in sales price improved your Company’s performance by $49,300. These results indicate that increasing the organization’s sales volume is more profitable than increasing the sales price.
How the Information is Useful
The expenses for your firm vary because of the different costs of each book sold and its shipping expenditure. The variable costing technique assists in decision-making since it eliminates fixed expenses of the products that an organization sells (Spacirova et al., 2020). The information from your Company's variable costing income statements is helpful since it will help you determine the appropriate books' selling prices to cover all the expenditures and realize high net incomes. In addition, the information will help you decide whether to increase the books' prices or sales volume to make more profit. Furthermore, since the method allows for determining the contribution margins, you can identify the profitable books' categories, enhancing how your Company allocates its resources.
A Suggestion to Turn The Serious Reader Company into a Full-Time Business Venture
You need to try a new marketing method to help in increasing the books’ sales volume, hence turning your business into a full-time venture. Arora et al. (2019) assert that great marketing involves experimenting and measuring various strategies to discover the best. You need to employ marketers who can brainstorm to get new ideas that your firm can apply and measure, hence increasing its revenue.
Recommendation
Your Company should increase its sales volume mor...
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