Professor’s comment: I reviewed your case study and you are very close on the standard costs and income statement. I tried to point out where I think you went wrong. See my answer key.
For the opportunity to improve your grade from 75 to 85, re-work your model to look like method 1 for costing.
Submit by Wednesday February 19th 8 pm to have grade change.
Please don’t copy and paste my answers into your model because you have slight variations, but I thought the learning opportunity with the rework will solidify your knowledge.
Week
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Pangea Corporation |
| Pangea manufactures sunglasses with various fashion frame options. Their sunglasses generally sell for
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| $ |
1
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| 0 |
-$15 per pair.
| The frames are created in-house (molded), with the lenses and screws purchased from other companies. |
| Week 3 Assignment |
| 1) Using your annual budget data from Week 3 (on the 2nd/3rd tab of this sheet) and the data provided, calculate the fixed and variable costs for the 3 production departments. |
| 2) Using your annual budget data from Week 3 and the data provided, calculate the standard costs of the 2 product lines produced in your factory. |
| Note: You will be using activity based costing; the various cost drivers available are specified in the data |
| 3) Using the budgeted sales data, calculate the standard gross margin for each of the 2 products – both per unit and total gross margin with budgeted volume. |
| Note: Present the standard gross margin in a contribution income statement format (per unit for each product line and total for each product line) |
| Note: Because we are costing products and only calculating through standard gross margin,
|
| Sales |
and Advertising Expense and
|
|
| Interest |
Expense can be ignored this week.
| 4) Write a paragraph explaining the results and recommending which product line would be best to advertise to gain additional sales, and why you chose that product line. |
| (I asked professor if she wants me to use the format she had or what I submitted for as Week 3 data, she said “You should look at what I sent versus what had and make
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| correct |
ions to yours and build for this week.
You had points off for not have some categories be
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| volume based |
, the loan needs to come out and just let me know what loan interest method you are using. I
accepted |
4 methods. I prefer the $
| 100,000 |
/ month amortization method.”)
| Plant Equipment |
| Pangea’s Delaware plant has 3 production departments: Mixing, Extruding, and Assembly |
| The Mixing department has 1 mixing tank (to mix the plastic), and the Extruding department has 2 extruders (that fill metal molds with plastic to form the sunglass frames). |
| Each of the three machines was purchased when the plant first started up, and they all had the same original cost and useful life. |
| Assembly does not use any production equipment. |
| Mixing uses 40% of the plant’s warehouse square footage as well as 40% of
| utilities |
costs.
| Extruding use 40% of the plant’s warehouse square footage as well as 40% of
| utilities |
costs.
| Assembly uses 20% of the plant’s warehouse square footage as well as 20% of utility costs (climate controlled area). |
| Other plant department information |
| 20% of total Salaries are attributable to the mixing tank |
| 30% of total Salaries are attributable to the extruding line |
| 50% of total Salaries are attributable to the assembly area |
|
|
| Fringe Benefits |
and
|
| Travel |
expenses are allocated the same as Salaries
| The contractors divide their time between the mixing tank and extruder areas (50% each). |
|
| Manufacturing supplies |
are use evenly by all production areas.
|
|
| Parts |
and Tools
are used only in the assembly area.
| Cost Driver |
| The main cost driver is machine hours for the Mixing and Extruding Department, and Man Hours for the Assembly Department |
| The
|
| Mixing Department |
expects to run 40 hours per week for 50 weeks this year.
| The Extruding Department expects to run 40 hours per week for 50 weeks this year – for each machine. |
| The 5 employees in the Assembly Department are expected to each work 40 hour weeks for 50 weeks this year. |
| Product Information |
| There are two different frame styles produced in Pangea’s Delaware manufacturing plant. Your budget from the prior weeks only included total volume. |
| Your budgeted volume will be divided by product as follows: 60%
| Rayz |
frames, and 40%
Beamz |
frames
| Rayz glasses sell for $
| 11.5 |
0 each, and Beamz glasses sell for $
14 |
.00 each.
| Purchased Material Costs |
| Each pair of sunglasses requires 2 lenses, 4 screws, and 0.5 gallons of plastic polymer (which gets made into frames) |
| Sunglass lenses cost $1.00 per lens, and screws cost $0.10 per screw. |
| Polymer costs $5.00 per gallon |
|
| Production of Sunglasses |
|
| Each batch of sunglasses makes 1000 pairs of sunglasses. |
|
| One batch of Rayz glasses takes 3 hours in the Mixing Department, 5 hours in the Extruding Department, and 12 hours in Assembly |
|
| One batch of Beamz glasses takes 3 hours in the Mixing Department, 8 hours in the Extruding Department, and 21 hours in Assembly |
Week 3 (prof’s format)
|
| Data for Operating Budget |
|
| 2016 |
Full Year
| 2017 August YTD |
2017 full year |
2018 Full year |
Sales
|
| 7,6
| 87 |
,500
| 6,000,000 |
8,309,008 |
8,724,458 |
| Increase of 5% in sales from 2017. 2017 full year sales calculated above times 1.05 |
|
| Purchased Raw Materials |
| 3,075,000 |
| 2,
| 400,000 |
3,323,603 |
3,489,783 |
Increase of 5% in sales from 2017. 2017 full year sales calculated above times 1.05
|
| Expense Category |
|
| Salaries and Wages |
| 775,000 |
| 485,667 |
|
| annualized |
| 728,500 |
750,355 |
Increase of 3% for cost of living for 2018 |
Fringe Benefits
|
| 372,000 |
| 242,833 |
50% of salary |
| 364,250 |
375,178 |
|
| Travel & Entertainment |
|
|
| 40,000 |
| 28,000 |
annualized
42,000 |
5%
| increase |
44,100 |
Taking the same 5% increase in T&E that occurred from 2016 to 2017 and carrying over to 2018 |
|
|
| Outside Contractors |
| 145,000 |
100,000 annualized
| 1
|
| 50,000 |
3% increase |
206,000 |
Increase of 3% for outside contractors = 154,500 / 3 = $51,500 per contractor X 4 people = 206,000 |
|
| Manufacturing Supplies |
| 250,000 |
1
|
| 60,000 |
volume based
221,574 |
229,139 |
if full year would have been .3333 per unit, (221,574/
|
| 664,721 |
) see savings below
| Parts and Tools |
60,000 40,000 volume based
55,393 |
57,288 |
if full year would have been .08333 per unit, (55,393/664,721) see savings below |
|
|
| Utilities |
|
|
| 300,000 |
rbamo: rbamo:
300,000/
|
| 615,000 |
=.4878
| 220,000 |
rbamo: rbamo:
220,000/4
| 80,000 |
= .4583
volume based
304,664 |
315,075 |
if full year would have been .4583 per unit, (304,664/664,721) see savings below |
|
|
|
| Depreciation |
150,000 |
| 110,000 |
new mix tank |
167,167
rbamo: rbamo:
month Depr 110,000/8= $13750*
|
| 12 months |
plus addition depr for mixing tank $65,000/10 years = $6500/12 times 4 months Sept-Dec
4 month depr |
171,500 |
New mixing tank purchased Sept 2017 – 4 months depreciation in 2017, full year in 2018 |
|
| Warehousing Costs |
80,000 50,000 volume based
69,242
rbamo: rbamo:
Thru August 50,000/
|
|
| 480,000 |
units = .104167 each
rbamo: rbamo:
300,000/615,000=.4878 |
rbamo: rbamo:
220,000/480,000= .4583
|
71,636 |
if full year would have been .1042 per unit, (69,242/664,721) see savings below |
|
| Total Operating Expense |
s
| 2,172,000 |
| 1,436,500 |
2,102,789 |
2,220,272 |
|
| Sales and Advertising Exp |
| 450,000 |
300,000 volume based
415,450 |
436,223 |
volume based in 2017 – per unit cost .625,
| case study |
silent on method of growth or savings
| Interest expense |
14,000 |
12,000 |
See accepted amortization methods |
|
| Income from Operations |
| 1,990,500 |
| 1,863,500 |
2,453,165 |
2,566,180 |
|
|
|
| Volume |
615,000 480,000 664,721
| 697,957 |
|
|
|
| 12.50 |
12.50 12.50 12.50
5 5 5 5
| Notes: |
|
| based on |
based on based on
| 8 months |
12 months 12 months
| Units sold |
2018 Volume based savings |
2016
| 2017 based on 2016 |
2017 annual |
2018 Annual |
Mfr supp |
Parts Utilities
Warehouse |
| Jan-March |
| 102,705 |
102,705
110,897 |
116,442 |
0 0 0
| Oct-Dec |
102,090 |
– 0 |
110,900 |
116,445 |
1164.33 |
291.10 |
1601.00 |
364.01 |
| April- Sept |
410,205 |
341,838 |
442,924 |
465,070 |
2325.12 |
581.31 |
3197.12 |
726.90 |
615,000
| 444,543 |
664,721 697,957
3489.45 |
872.41 |
4798.13 |
1090.91 |
480,000
| 2017 % increase in sales over 2016 |
7.976% |
sales based on |
Sales 5% higher |
| 7.976% volume |
case study
increase
| assumption |
Week 3 assignment
| Esra Surmen Case Study 1 |
Data for Operating Budget
2017 August YTD
| 2017 Full Year |
2018 Full Year |
Assumptions for 2017 |
Assumptions for 2018 |
Sales 7,687,500 6,000,000
| 8307692.5 |
8723077.13 |
correct
Sales of materials based on 2016 selling price |
Sales of materials based on 2016 selling price |
Purchased Raw Materials 3,075,000 2,400,000
| 3323077 |
3489230.85 |
correct
|
|
| Assumed to vary according to volume |
Assumed to vary according to volume
Expense Category
Salaries and Wages 775,000 485,667 728,500
| 750,355.00 |
correct
Increased by 3 percent per annum of 2017 value |
Fringe Benefits 372,000 242,833 364,250
| 375,177.50 |
correct
Varies according to wages |
Assumed to be 50 percent of 2017’s total salaries and wages |
Travel & Entertainment 40,000 28,000
| 42,000.00 |
44,100.00 |
correct
| Varies annually by 5 percent |
Varies annually by 5 percent
Outside Contractors 145,000 100,000
| 150,000.00 |
200,000.00 |
correct
Varies per month |
The company hires four contractors |
accepted 2017 over 2016 esculated 3% similar in 2018 |
Manufacturing Supplies 250,000
| 160,000 |
240,000.00 |
252,000.00 |
|
| minus 1 |
|
|
|
|
|
| Varies according to volume |
Varies according to volume
|
| missed 2nd half efficeincy measures |
Parts and Tools 60,000 40,000
| 55,384.62 |
58,153.85 |
minus 1 Varies according to volume Varies according to volume missed 2nd half efficeincy measures
Utilities 300,000 220,000
| 304,615.39 |
319,846.16 |
correct Varies according to volume
Varies according to volume; volume related cost decreases by 3% for second half of 2018 |
Depreciation 150,000 110,000
| 165000 |
171500 |
correct
Varies monthly |
Net depreciation of 2017 +depreciation of new machine |
Warehousing Costs 80,000 50,000
| 69230.77 |
72692.31 |
minus 1 Varies according to volume Varies according to volume missed 2nd half efficeincy measures
| Loan |
400,000
800,000.0 |
minus 10 |
Paid at end of 2017 |
Paid at end of 2018 |
Loan payments are not expenses. Payments is on fixed asset |
Interest
| 16000 |
32000 |
accepted
Interest computed on 1200000 |
Interest computed on 800000 |
Total Operating Expense 2,172,000 1,436,500
| 2,534,981 |
3,075,824.8 |
Sales and Advertising Exp 450,000 300,000
| 415384.63 |
436153.86 |
correct Assumed to vary according to volume Assumed to vary according to volume
Income from Operations 1,990,500 1,863,500
| 2,034,250.1 |
1,721,867.6 |
Volume 615,000 480,000
| 664615.4 |
697846.17 |
correct
| 0.41 |
0.33 |
| 0.36 |
0.36
| Process |
| Sales estimation between August 2017 and September 2018 |
| Let sales (in quantity) between October and March be X |
Grade |
87
| Quantity of sales between April and September = 2X |
| Therefore; |
| Sales from January to August = 480,000 |
| X/2+2X*5/6=480000 |
| X= 221,538.5 units |
| Assuming uniform distribution of sales; |
| Demand for the month of September = 2X/6 |
| Demand between October and December = (X/6)*3 |
| Net demand = 2X/6+3X/6 =5X/6 |
| =5 (221,538.5)/6 |
| =184,615.4 units |
| For simple simplification assume the demand to be 185,000 units |
Fixed &variable costs
| Fixed Costs 3 production departments |
Mixing Department $
|
| Extruding dept. |
$
| Assembly dept |
.
$
| Mixing tanks |
$ 110,000.00 |
Extruding machine |
$ 220,000.00 |
Is this cost of Machines? If so it is cash item, not an P&L item. Costs are captures in depreciation |
| Warehousing cost |
|
| $ 29,076.92 |
| warehousing cost |
$ 29,076.92 warehousing cost
$ 14,538.46 |
| fix week 3 to reflect cost savings 2nd half of year. You find on the answer key I sent when I graded yours |
|
| Salaries &wages |
$ 150,071.00 |
Salaries & wages |
$ 225,106.50 |
Salaries &wages
$ 375,177.50 |
correct
| fringe benefits |
$ 75,035.50 |
| Fringe benefits |
$ 112,553.25 |
Fringe benefits
$ 187,588.75 |
correct
Travel
| $ 8,820.00 |
Travel
$ 13,230.00 |
Travel
$ 22,050.00 |
correct
|
| Outside contractors |
| $ 100,000.00 |
Outside contractors $ 100,000.00 correct
| Depreciation |
$ 57,166.67 |
Depreciation
$ 114,333.33 |
correct
Interest
|
|
| $ 10,666.67 |
Interest $ 10,666.67 Interest $ 10,666.67
1/3 allocation of interest to each dept is not correct, perhaps a better method would be fixed assets percent of 3 depts. The 2nd Note under 3) says ignore sales and Adv exp & interest |
| Totak fixed cost |
$ 540,836.76 |
$ 824,966.67 |
$ 610,021.38 |
| Variable costs production departments |
Mixing Department $ Extruding dept. $ Assembly dept $
|
| Utilities |
|
| $ 127,938.46 |
Utilities $ 127,938.46 utilities
$ 63,969.23 |
correct
Manufacturing supplies
|
|
| $ 84,000.00 |
manufacturing supplies |
$ 84,000.00
manufacturing supplies |
$ 84,000.00 fix week 3 to reflect cost savings 2nd half of year. You find on the answer key I sent when I graded yours
| Sales &advertising |
|
| $ 145,384.62 |
sales & advertising |
$ 145,384.62
Parts & tools |
$ 58,153.85 |
| Sales & advertising |
are not production dept costs and should be ignored
each line item should be the same row |
| Raw materials |
| $ 1,744,615.43 |
raw materials |
$ 1,744,615.43 Sales & advertising $ 145,384.62
Sales & advertising are not production dept costs and should be ignored |
| Total variable cost |
| $ 2,101,938.51 |
$ 2,101,938.51
$ 351,507.70 |
| Accepted method, however |
| This method does not differeniate between hours needed in Extruding & Assembly for Beamz glasses versus Rayz |
Production of Sunglasses
Each batch of sunglasses makes 1000 pairs of sunglasses.
One batch of Rayz glasses takes 3 hours in the Mixing Department, 5 hours in the Extruding Department, and 12 hours in Assembly
One batch of Beamz glasses takes 3 hours in the Mixing Department, 8 hours in the Extruding Department, and 21 hours in Assembly
|
| Standard cost |
and gross income
| Standard cost for
| Rayz Glasses |
and
Beamz Glasses |
Rayz Beamz
Volume
|
| 418,774 |
| 279,183 |
| Direct Materials(lenses,screws &gallons) |
$ 2,051,993.00 |
$ 1,367,996.70 |
| production cost |
$ 56,848.00 |
$ 64,728.00 |
Outside Contractors
| $ 120,000.00 |
$ 80,000.00 |
| Manufacturing supplies |
$ 151,200.00 |
$ 100,800.00 |
| Part & Tools |
$ 34,892.31 |
$ 23,261.54 |
utilities
| $ 191,907.70 |
$ 127,938.46
Depreciation
| $ 102,900.00 |
$ 68,600.00 |
| Warehousing costs |
$ 43,615.39 |
$ 29,076.92
| Travel and entertainments |
$ 26,460.00 |
$ 17,640.00 |
Standard cost
|
| $ 2,779,816.39 |
| $ 1,880,041.63 |
| Standard Gross margib for Rayz Grasses and Beamz Glasses |
Rayz Glasses Beamz Glasses
Volume 418,774 279,183
| Selling price per product |
11.5 14
| Sales revenue |
4,815,900.84 |
3,908,557.21 |
Standard cost $ 2,779,816.39 $ 1,880,041.63
| Total income per product |
2,036,084.45 |
2,028,515.58 |
| Per unit income |
4.8620127296 |
7.2659082644 |
| 4. Product line to advertise to make additional sales |
| From the results, shows that Rayz glasses record high income when total gross income is taken into consideration but when income per unit is calculated, Beamz glasses records higher value. Based on these results, it will be important to advertise Rayz glasses product. Thuis will help to increase volume of the sales hence making more sales revenue and record higher income per unit. In view of this, increasing income per unit should be the basis for making decisoon on the product line that should be advertised. |
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2,
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| 1 |
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| 6 |
201
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| 7 |
(August YTD
|
| 2017 |
(Full Year)
2,01
|
|
| 8 |
|
| Volume |
|
| 615,000 |
|
|
|
| 4 |
| 80,000 |
|
| 664,721 |
|
|
|
| 6
|
|
| 9 |
7,957
|
|
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| Sales |
| 7,687,500 |
| 6,000,000 |
| 8,
|
|
| 3 |
09,008
| 8,724,458 |
| Cost of Goods Sold-Raw Materials |
| 3,075,000 |
| 2,400,000 |
| 3,323,603 |
| 3,489,783 |
| Gross Margin |
4,6
|
|
|
| 12 |
,500
3,600,000 |
4,985,405 |
5,234,675 |
|
| Expense Category |
|
|
| Salaries and Wages |
| 775,000 |
| 485,667 |
| 728,500 |
|
| 750,355 |
|
|
|
| Fringe Benefits |
| 372,000 |
| 242,833 |
| 364,250 |
|
|
|
| 375,178 |
|
| Travel & Entertainment |
|
|
| 40,000 |
| 28,000 |
| 42,000 |
|
| 44,
|
|
| 10 |
0
|
|
| Outside Contractor |
s
| 145,000 |
| 100,000 |
| 1
|
| 50,000 |
|
| 206,000 |
|
|
|
| Manufacturing Supplies |
| 250,000 |
1
|
| 60,000 |
| 221,574 |
|
| 229,
| 13 |
9
|
|
| Parts |
and Tools
60,000 40,000
| 55,393 |
|
|
|
| 57,288 |
|
|
|
|
| Utilities |
|
| 300,000 |
220,000 |
| 304,664 |
|
| 315,075 |
|
|
| Depreciation |
| 150,000 |
|
|
|
| 11 |
0,000
167,167 |
|
| 171,500 |
|
|
| Warehousing |
Costs
80,000 50,000
69,242 |
|
| 71,636 |
|
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|
|
|
|
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|
|
|
|
| Total |
Operating Expenses
| 2,172,000 |
| 1,436,500 |
2,102,790 |
| 2,220,271 |
Amount to separate for fixed & variable costs |
|
| Sales and Advertising Exp |
| 450,000 |
300,000
| 415,450 |
| 436,223 |
| ignored in week 5 |
|
|
| Interest |
expense
| 14,000 |
| 12,000 |
ignored in week 5
| Total Expenses |
2,622,000 |
1,736,500 |
2,532,240 |
2,668,494 |
|
| Income from Operations |
| 1,990,500 |
| 1,863,500 |
| 2,453,165 |
2,566,182 |
| 1) Using your annual budget data from Week 1 and the data provided, calculate the fixed and variable costs for the 3 production departments. |
| Part 1 |
Fixed and Variable costs calculations |
|
| Variable Costs |
Total
|
|
| Mixing |
|
|
| Extruding |
|
|
| Assembly |
Fringe Benefits 375,178
|
| 75,036 |
| 112,553 |
| 187,589 |
|
| Travel And Entertainment |
44,100
| 8,820 |
| 13,230 |
| 22,050 |
Outside Contractor 206,000
|
|
|
| 103,000 |
103,000
|
|
| – 0 |
Manufacturing Supplies 229,139
|
|
|
| 76,372 |
76,372
| 76,395 |
| Parts And Tools |
57,288 – 0 – 0 57,288
Utilities 315,075
|
|
|
| 126,030 |
126,030
| 63,015 |
Total
|
| 1,226,780 |
| 389,258 |
| 431,185 |
| 406,337 |
|
|
| Fixed Costs |
| Salaries And Wages |
750,355
| 150,071 |
| 225,107 |
375,178
Depreciation 171,500
| 34,300 |
51,450 |
85,750 |
Warehousing 71,636
|
|
|
| 28,654 |
28,654
1
| 4,327 |
Total
|
| 993,491 |
| 213,025 |
| 305,211 |
| 475,255 |
Total Mixing Extruding Assembly
Variable Costs 1,226,780 389,258 431,185 406,337
Fixed Costs 993,491 213,025 305,211 475,255
| Total Costs |
2,220,271
602,283 |
736,396 |
881,592 |
| 2) Using your annual budget data from Week 3 and the data provided, calculate the standard costs of the 2 product lines produced in your factory. |
|
| 2 methods accepted |
|
| Method 1 -Allocation of both Fixed and variable costs by type of product produced |
|
|
|
| Rayz |
|
|
| Beamz |
Total
| Budgeted Volume |
| 418,774 |
| 279 |
,183
697,957
| Batches (per 1,000) |
419 |
279
698 |
Rayz Beamz Total
| Total Hours in Mixing machinery |
1,256 |
838 |
| 2,094 |
Machine hours differs slightly over expected hours of 2,000 (40*50) due to rounding from the number of batches |
| Total Hours in Extruding machinery |
2,094
2,233 |
4,327
Note different hours used in Rayz vs Beamz. Machine hours differs slightly over expected hours of 4,000 (2 machines *40*50)due to rounding from the number of batches |
| Total employee hours in Assembly |
5,025 |
5,863 |
10,888 |
Note different hours used in Rayz vs Beamsz.Employee hours differs slightly over expected hours of 10,000 (5 employees 840*50)due to rounding from the number of batches |
| 8,374 |
8,932 |
17,307 |
| Product Costing |
| Rayz Glasses |
Beamz Glasses |
Total
|
| Per Unit |
Total Per Unit
Standard Material Costs |
| Standard Material Costs unit |
2,051,994 |
|
| 4.90 |
1,367,996 |
4.90
Requires for 1 pair: |
Mixing
| 361,370 |
| 0.86 |
240,913 |
0.86
Lens |
2
$1 per lens |
2.00 |
Extruding
| 356,321 |
0.85 |
380,076 |
1.36 |
Screws |
4
$.10 per screw |
0.40 |
Assembly
| 406,888 |
0.97 |
474,703 |
1.70 |
Plymer |
0.5 |
$5 per gallon |
2.50 |
| 3,176,573 |
7.59 |
2,463,688 |
8.82 |
4.90
|
| Method 2 -Allocation of variable costs by Dept & Salaries & Wages |
| This method does not differeniate between hours needed in Extruding & Assembly for Beamz glasses versus Rayz |
| Standard Costs Calculations |
Production of Sunglasses |
| Standard Costs to make products |
Mixing Extruding Assembly
Each batch of sunglasses makes 1000 pairs of sunglasses. |
| One batch of Rayz glasses takes 3 hours in the Mixing Department, 5 hours in the Extruding Department, and 12 hours in Assembly |
Warehousing 28,654 28,654
| 14,327 |
One batch of Beamz glasses takes 3 hours in the Mixing Department, 8 hours in the Extruding Department, and 21 hours in Assembly |
Utilities 126,030 126,030 63,015
| Parts & Tools |
0 0 57,288
Salaries and Wages 150,071 225,107 375,178
Fringe Benefits 75,036 112,553 187,589
Outside Contractor 103,000 103,000 0
Manufacturing Supplies 76,372 76,372 76,395
Travel And Entertainment 8,820 13,230 22,050
| Depreciation – fixed cost |
Total
| 567,983 |
684,946 |
795,842 |
| Standard costs per batch |
| Mixing Line |
568 |
| Extruding line |
685 |
| Assembly line |
796 |
| 3) Using the budgeted sales data, calculate the standard gross margin for each of the 2 products – both per unit and total gross margin with budgeted volume. |
2 methods accepted
Method 1 -Allocation of both Fixed and variable costs by type of product produced
Rayz Beamz Total
| Budgeted volume: |
418,774
279,183 |
697,957
| Gross margin per unit |
Sales
| $
| 11.50 |
$
| 14.00 |
|
| Cost of Goods Sold: |
|
| Direct Materials |
| $ 5.00 |
$ 5.00
Problem asks for budgeted costs from week 3 |
| Production Costs |
| Mixing Costs |
| $ 0.86 |
$ 0.86
| Extruding Costs |
$ 0.85 |
$ 1.36 |
Note: for student who used dept allocation method of costs |
| Assembly Costs |
$ 0.97 |
$ 1.70 |
see the differences in per unit cost by dept |
Cost of Goods Sold:
| $ 7.69 |
$ 8.92 |
| Gross Profit |
$ 3.81 |
$ 5.08 |
| Gross profit margin |
33.17% |
36.25% |
Method 2 -Allocation of variable costs by Dept & Salaries & Wages This method does not differeniate between hours needed in Extruding & Assembly for Beamz glasses versus Rayz
| Per Unit Contribution: |
Rayz Beamz Total
Sales 11.50 14.00
| Material,
| Variable & salary costs |
| 7.83 |
7.83
Same costs when Beamz takes more Extruding & Assembly hours |
| Contribution Margin |
3.67 |
6.17 |
| checks to budget income statement |
| Total Sales |
4,815,903 |
3,908,559 |
8,724,463 |
5
|
| Rounding to sales above due to product breakout |
Direct Materials
| 2,093,871 |
1,395,914 |
3,489,785 |
| -2 |
Rounding to sales above due to product breakout
Variable & salary costs
| 1,186,281 |
790,854 |
1,977,135 |
| Contribution Margin |
1,535,751 |
1,721,791 |
3,257,543 |
Fixed Costs
| 145,882 |
97,254 |
243,136 |
| Operating Profit |
1,389,870 |
1,624,537 |
3,014,407 |
-2 Rounding to sales above due to product breakout
1
| 4. Product line to advertise to make additional sales – narrative |
| Based on the contribution & profit margins listed above, the company would be better off to pursue a |
| higher advertising campaign and production of the Beamz glasses. The Beamz do take longer to produce |
| but it produces a higher profit margin & slighly higher contribution margin. |
Week 3 Operating statement
| Data for Operating Budget |
|
| 2016 |
Full Year
2017 August YTD |
2017 full year |
|
| 2018 |
Full year
Sales 7,687,500 6,000,000 8,309,008 8,724,458
|
| Increase of 5% in sales from 2017. 2017 full year sales calculated above times 1.05 |
| Purchased Raw Materials |
3,075,000 2,400,000 3,323,603 3,489,783 Increase of 5% in sales from 2017. 2017 full year sales calculated above times 1.05
Expense Category
Salaries and Wages 775,000 485,667
|
|
| annualized |
728,500 750,355
Increase of 3% for cost of living for 2018 |
Fringe Benefits 372,000 242,833
| 50% of salary |
364,250 375,178
Travel & Entertainment 40,000 28,000 annualized 42,000
| 5%
| increase |
44,100
Taking the same 5% increase in T&E that occurred from 2016 to 2017 and carrying over to 2018 |
| Outside Contractors |
145,000 100,000 annualized 150,000
3% increase |
206,000
Increase of 3% for outside contractors = 154,500 / 3 = $51,500 per contractor X 4 people = 206,000 |
Manufacturing Supplies 250,000
| 160,000 |
|
|
|
| volume based |
221,574 229,139
if full year would have been .3333 per unit, (221,574/664,721) see savings below |
Parts and Tools 60,000 40,000 volume based 55,393 57,288
| if full year would have been .08333 per unit, (55,393/664,721) see savings below |
Utilities
300,000
rbamo: rbamo:
300,000/615,000=.4878 |
220,000
rbamo: rbamo:
220,000/
|
| 480,000 |
= .4583
volume based 304,664 315,075
if full year would have been .4583 per unit, (304,664/664,721) see savings below |
Depreciation 150,000 110,000
| new mix tank |
167,167
rbamo: rbamo:
month Depr 110,000/8= $13750*
|
| 12 months |
plus addition depr for mixing tank $65,000/10 years = $6500/12 times 4 months Sept-Dec
4 month depr |
171,500
New mixing tank purchased Sept 2017 – 4 months depreciation in 2017, full year in 2018 |
| Warehousing Costs |
80,000 50,000 volume based
69,242
rbamo: rbamo:
Thru August 50,000/480,000 units = .104167 each
|
rbamo: rbamo:
300,000/615,000=.4878 |
rbamo: rbamo:
220,000/480,000= .4583
|
71,636
if full year would have been .1042 per unit, (69,242/664,721) see savings below |
| Total Operating Expenses |
2,172,000 1,436,500
2,102,789 |
2,220,272 |
Sales and Advertising Exp 450,000 300,000 volume based 415,450 436,223
| volume based in 2017 – per unit cost .625,
| case study |
silent on method of growth or savings
Interest expense 14,000 12,000
| See accepted amortization methods |
Income from Operations 1,990,500 1,863,500 2,453,165
| 2,566,180 |
Volume 615,000 480,000 664,721 697,957
|
|
|
| 12.50 |
12.50 12.50 12.50
5 5 5 5
| Notes: |
|
| based on |
based on based on
| 8 months |
12 months 12 months
| Units sold |
2018 Volume based savings |
2016
| 2017 based on 2016 |
2017 annual |
2018 Annual |
Mfr supp |
Parts Utilities
Warehouse |
| Jan-March |
| 102,705 |
102,705
110,897 |
116,442 |
0 0 0
| Oct-Dec |
102,090 |
– 0
110,900 |
116,445 |
1164.33 |
291.10 |
1601.00 |
364.01 |
| April- Sept |
410,205 |
341,838 |
442,924 |
465,070 |
2325.12 |
581.31 |
3197.12 |
726.90 |
615,000
| 444,543 |
664,721 697,957
3489.45 |
872.41 |
4798.13 |
1090.91 |
480,000
| 2017 % increase in sales over 2016 |
7.976% |
sales based on |
Sales 5% higher |
| 7.976% volume |
case study
increase
| assumption |
Loan Amort methods
| Accepted Amortization methods |
4 variations |
Mixing machine was purchased in Sept otherwise there would have been interest cost in August |
| $100,000 per month plus interest |
|
|
| 4% |
1
| 9/1/17 |
1,
| 200,000.00 |
$ 4,000.00 |
2
| 10/1/17 |
1,
| 100,000.00 |
$ 3,666.67 |
3
| 11/1/17 |
1,000,000.00 |
$ 3,333.33 |
4
| 12/1/17 |
900,000.00 |
$ 3,000.00 |
$ 14,000.00 |
5
| 1/1/18 |
|
| 800,000.00 |
$
|
| 2,666.67 |
6
| 2/1/18 |
700,000.00 |
$ 2,333.33 |
7
| 3/3/18 |
600,000.00 |
$ 2,000.00 |
8
| 4/2/18 |
500,000.00 |
$ 1,666.67 |
9
| 5/2/18 |
400,000.00 |
$ 1,333.33 |
10
| 6/2/18 |
300,000.00 |
$ 1,000.00 |
11
| 7/2/18 |
200,000.00
$ 666.67 |
12
| 8/1/18 |
100,000.00
$ 333.33 |
$ 12,000.00 |
| Fixed payment over 12 month |
| Loan Amount |
| $
| 1,200,000.00 |
2017
| Interest Rate |
4% 2018
| # payments |
12
4 in 2017, 8 in 2018 |
| # of years |
1
| Monthly payment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $102,179.89 |
| Additional principal needed |
$5,312.49 |
|
|
| $1,328.12 |
|
| Payment |
Month
Payment
Principal |
Interest
Add. Principal |
Principal + Interest |
Loan amount left |
0 $1,200,000.00
1 $102,179.89
| $ 98,179.89 |
$4,000.00 |
$1,328.12 $102,179.89
$1,100,491.99 |
2 $102,179.89
| $ 98,511.58 |
$3,668.31 |
$1,328.12 $102,179.89
$1,000,652.30 |
3 $102,179.89
| $ 98,844.38 |
$3,335.51 |
$1,328.12 $102,179.89
$900,479.80 |
4 $102,179.89
| $ 99,178.29 |
$3,001.60 |
$1,301.51 |
$102,179.89
$800,000.00 |
5 $102,179.89
| $ 99,513.22 |
$2,666.67 |
$102,179.89
$700,486.79 |
6 $102,179.89
| $ 99,844.93 |
$2,334.96 |
$102,179.89
$600,641.86 |
7 $102,179.89
| $ 100,177.75 |
$2,002.14 |
$102,179.89
$500,464.11 |
8 $102,179.89
| $ 100,511.67 |
$1,668.21 |
$102,179.89
$399,952.44 |
9 $102,179.89
| $ 100,846.71 |
$1,333.17 |
$102,179.89
$299,105.73 |
10 $102,179.89
| $ 101,182.87 |
$997.02 |
$102,179.89
$197,922.86 |
11 $102,179.89
| $ 101,520.14 |
$659.74 |
$102,179.89
$96,402.72 |
12
|
| $96,724.06 |
$ 96,402.72 |
$321.34 |
$96,724.06
$0.00 |
| $1,220,702.80 |
$1,194,714.13 |
$25,988.67 |
| Total interest expense: |
2017
$14,005.41 |
2018
| $11,983.26 |
| Total 2017 principal payments made on loan |
$ 400,000.00 |
| Total 2018 principal payments made on loan |
$ 800,000.00 |
| $ 1,200,000.00 |
| LOAN AMORTIZATION SCHEDULE FOR 12 MONTHS OF PAYMENTS TO PAY OFF $800,000 LOAN BALANCE WITH 4%
| INTEREST |
| PRINCIPAL |
INTEREST
CUMULATIVE PRINCIPAL |
CUMULATIVE INT |
LOAN PRIN BALANCE |
1
|
| 65,453.25 |
2,666.67 65,453.25 2,666.67
734,546.75 |
2
| 65,671.43 |
2,448.49 |
131,124.68 |
5,115.16 |
668,875.32 |
3
| 65,890.34 |
2,229.58 |
197,015.02 |
7,344.74 |
602,984.98 |
4
| 66,109.97 |
2,009.95 |
263,124.99 |
9,354.69 |
536,875.01 |
5
| 66,330.34 |
1,789.58 |
329,455.33 |
11,144.27 |
470,544.67 |
6
| 66,551.44 |
1,568.48 |
396,006.77 |
12,712.75 |
403,993.23 |
7
| 66,773.28 |
1,346.64 |
462,780.05 |
14,059.39 |
337,219.95 |
8
| 66,995.85 |
1,124.07 |
529,775.90 |
15,183.46 |
270,224.10 |
9
| 67,219.17 |
900.75 |
596,995.07 |
16,084.21 |
203,004.93 |
10
| 67,443.24 |
676.68 |
664,438.31 |
16,760.89 |
135,561.69 |
11
| 67,668.05 |
451.87 |
732,106.36 |
17,212.76 |
67,893.64 |
12
| 67,893.61 |
226.31 |
799,999.97 |
| 17,439.07 |
0.03 |
13
| *0.03 |
0 800,000.00 17,439.07 0
| Balloon payment method |
| Paid 12/31/2017 |
1,200,000.00 4%
$ 16,000.00 |
| annual interest |
Sept-December |
| Paid 12/31/2018 |
800,000.00 4%
$ 32,000.00 |
annual interest
assumes 12 months |
