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CoursHeroTranscribedText: Problem 6 (Pricing) Neilsen's Woodworking Company came to you for assistance when the bookkeeper presented the income statement showing large loss for the second year of operations. The loss of P70,000 was expected for the first year when the company operated at low level. However, the management of Neilsen's Woodworking was shocked to discover a loss of P160,000 for the second year. The president of the company could not understand how they could be operating at near-capacity and losing money. The company was consistently short of cash, a common problem when operations are expanding. From your preliminary examinations, you found very poor accounting records. You are satisfied that the data in the financial statements are correct and that there is no significant fraud. The company manufactures a line of kitchen cabinets. Because of the lack of detailed records, it is impossible to develop data about the cost of the product. The selling price was set by the president to undersell competition. Condensed income statements are presented below. NEILSEN'S WOODWORKING Income Statement 20X3 and 20X4 20X3 20X4 Sales (P40 each) P 100,000 P 400,000 Operating expenses: Beginning inventory of materials P 0 P 20,000 Operating expense 190,000 P. 190,000 570,000 Total P 20,000 590,000 Ending inventory of materials Expenses for the year P 170,000 30,000 P (70.000) P 560,000 Net loss P(160,000)Other data: Units produced 2,500 units 10,000 units Units sold 2,500 units 10,000 units Assets invested in business P100,000 P100,000 Capacity in units 12,000 12,000

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