Question

Question 3c)

3) TrueBeat's management will need to produce 4,000 units in Years 2 and 3 (to meet relevant range) and 6,000 units in Year 4. However, they anticipate selling only 3,000 units in Year 2 but 5,000 units in Years 3 and 6,000 units in Year 4. They will have to carry inventory produced in Year 2 until it is sold in Year 3. Note: Net Operating Income, or NOI, for this course is essentially Income before interest or tax expense and represents the operationally controlled components of Net Income. a) Using variable costing and contribution margin income statement format, prepare predictive income statements for Years 2, 3 and 4 below. Sales revenue Variable production costs Variable S&A expenses Contribution Margin Fixed Overhead Fixed S&A expenses Net Operating Income TrueBeat Income Statement (Variable Costing) For Years ending December 31 Year 2 Year 3 1548000 2,580.000 56700D 945. DOO 274500 62.500 943. DO 1.572.500 198.00 198.000 275.00 275.000 470.500 1.099,500 Year 4 3.090.000 1.134.000 75.DDD L887,ODD 19R ODD 275.000 1.414.000

Answer 1

3c) The net operating income in Year 3 is more than double the year 2's.The decision taken by the Truebeat seems to be good decision. The already manufactured drum sets provide a relaxation to Truebeat as they are able to sell more of 1,000 units (5,000 - 4,000) above their expected level of range.The company finally meets the market demand thereby providing more income and more of customer are reached respectively.