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Chapter 1: 36PGA-2 (page 1)

Question:Blanchette Plant Service completed a special landscaping job for Kerry Company. Blanchette uses ABC and has the following predetermined overhead allocation rates:

Activity Predetermined

Allocation Base Overhead Allocation Rate

Designing Number of designs \( 290 per design

Planting Number of plants \) 20 per plant

The Kerry job included \(750 in plants; \)1,300 in direct labor; one design; and 30 plants.

Requirements

2. If Kerry paid $3,540 for the job, what is the operating income or loss?

Short Answer

Expert verified

Answer

Operating Income: $1,350

Step by step solution

01

Operating income

Operating income is the difference between the net income and the operating cost. Operating income denotes the amount earned in performing a complete cycle of operation. Operating cost includes the direct labor cost, material cost, and overhead cost.

Operating income earned is spent on after production activities to make sales and the residual amount is called the net profit.

02

Computation of operating income

Operatingincome=Pricepaid-Totalcost=$3,540-$2,190=$1,350

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Most popular questions from this chapter

Compute the missing amount in the accounting equation for each entity from the financial information presented:

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ExampleComponent
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Let鈥檚 examine a case using Greg鈥檚 Tunes and Sal鈥檚 Silly Songs. It is now the end of the first year of operations, and the stockholders want to know how well each business came out at the end of the year. Neither business kept complete accounting records, and no dividends were paid. The businesses throw together the data shown on the next page at year-end: \( 23,000 8,000 35,000 22,000 \) 10,000 6,000 44,000 9,000 Total Assets Common Stock Total Revenues Total Expenses Greg鈥檚 Tunes: Sal鈥檚 Silly Songs: Total Liabilities Common Stock Total Expenses Net Income To gain information for evaluating the businesses, the stockholders ask you several questions. For each answer, you must show your work to convince the stockholders that you know what you are talking about. Requirements 1. Which business has more assets?

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