Roland Company Operates a Small Factory in Which It Manufactures

question 40

Essay

Roland Company operates a small factory in which it manufactures two products: A and B. Production and sales result for last year were as follow:
For purposes of simplicity, the firm allocates total fixed costs over the total number of units of A and B produced and sold.
The research department has developed a new product (C) as a replacement for product B. Market studies show that Roland Company could sell 11,000 units of C next year at a price of $80, the variable costs per unit of C are $39. The introduction of product C will lead to a 10% increase in demand for product A and discontinuation of product B. If the company does not introduce the new product, it expects next year's result to be the same as last year's.
Instructions
Should Roland Company introduce product C next year? Explain why or why not. Show calculations to support your decision.

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Definitions:

Closing Entries

Entries recorded at the conclusion of an accounting cycle to shift balances from temporary to permanent accounts.

Temporary Accounts

Accounts used to collect revenues, expenses, and withdrawals for a single accounting period, which are then closed and transferred to permanent accounts at period end.

Capital Balance

The portion of the equity section in a company's balance sheet that shows the net worth attributable to the owners or shareholders.

Adjusting Journal Entries

Entries made at the end of an accounting period to update the accounts and ensure accurate financial reporting.