Income Statement of the Kicker Inc Questions

Description

The problem requires students to evaluate the profitability of an event.  The evaluation involves the classification of costs by function and as direct or indirect costs of the event.  Analysis should also include the classification of costs as relevant or not relevant to the decision.

  • 1.  How do you suppose Kicker accounts for the costs of the tent sales?  (Refer to cost terminology in chapter 2)
  • 2.  Using the data provided in the problem, calculate the profit or loss from the Austin tent sale?
  • 3.  Refer to the Chapter 8 material on relevant costs for Keep/Drop decisions.  Which of the amounts would be relevant to a decision to keep or drop the Austin tent sale?
  • 4.  What actions do you suggest Kicker take to improve the profitability of the Austin tent sale?

Explanation & Answer length: 4 Questions.

Problem 2-61 Cost Analysis, Income Statement Objective 1, 2 ZO வ Five to six times a year, Kicker puts on tent sales in various cities K KICKER throughout Oklahoma and the surrounding states. The tent sales are designed to show Kicker customers new products, engender enthusiasm about those products, and sell soon to be out-of-date products at greatly reduced prices. Each tent sale lasts 1 day and requires parking lot space to set up the Kicker semitrailer, a couple of show cars, a disc jockey playing music, and a tent to sell Kicker merchandise, distribute brochures, and so on.

Last year, the Austin tent sale was held in a far corner of the parking lot outside the city exhibition hall where the automotive show was in progress. Because most customers were interested more in the new model cars than in the refurbishment of their current cars, foot traffic was low. In addition, customers did not want to carry speakers and amplifiers all the way back to where they had originally parked. Total direct costs for this tent sale were $14,300. Direct costs included gasoline and fuel for three pickup trucks and the semitrailer; wages and per diem for the five Kicker personnel who traveled to the show, rent on the parking lot space, and depreciation on the semitrailer, pickups, tent, tables in tent), sound equipment, and the like. Revenue was $20,000. Cost of goods sold for the speakers was $7,000

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