The Manager of the Manufacturing Division of Iowa Windows Does

question 103

Essay

The manager of the manufacturing division of Iowa Windows does not understand why income went down when sales went up.Some of the information he has selected for evaluation include:
$$\begin{array} { l r r } & \text { Ianuary } & \text { February } \\\text { Units produced } & 40,000 & 30,000 \\\text { Units sold } & 30,000 & 40,000 \\ & & \\\text { Sales } & \$ 600,000 & \$ 800,000 \\\text { Beginnuing inventory }& 0 & 150,000 \\\text { Cost of production } & 600,000 & 550,000 \\\text { Ending inventory } & 150,000 & 0 \\\text { Operating income } & 70,000 & 35,000\end{array}$$ The division operated at normal capacity during January.
Variable manufacturing cost per unit was $5,and the fixed costs were $400,000.
Selling and administrative expenses were all fixed.
Required:
Explain the profit differences.How would variable costing income statements help the manager understand the division's operating income?

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Definitions:

Brand-name Recognition

Brand-name Recognition is the extent to which a consumer can correctly identify a particular product or service just by viewing the product's logo, tag line, packaging, or advertising campaign.

Trade Secrets

Confidential business information that provides an enterprise with a competitive edge, and is protected from public disclosure.

Time Lag

The delay between the initiation of an action or policy and the observed effects or outcomes of that action.

Patentable

Qualifies for intellectual property protection because it is new, useful, and non-obvious.