Juicy Lemonade Company The Juicy Lemonade Company manufactures premium flavored
ID: 2454098 • Letter: J
Question
Juicy Lemonade Company
The Juicy Lemonade Company manufactures premium flavored organic lemonade. Management is ready to close the books for the end of the first quarter in 2015 and your supervisor has presented you with the following information.
Total sales in gallons of flavored lemonade for January 2015 through March 2015 are as follows:
January 14,000
February 15,000
March 17,000
Each gallon of lemonade is packaged in eight 16 ounce bottles and sold in a case that sells for $15.00 per case. The company produced 47,500 units during the first quarter of 2015.
The company’s Variable Costs include the following
Direct Materials of $1.50 per gallon
Direct Labor of $____ per gallon (Each gallon of lemonade requires 15 minutes of direct labor time and the wage rate is $8.00 per hour)
Variable MOH $_____per gallon (The variable overhead rate is $2.00 per machine hour and processing one gallon of lemonade takes 45 minutes of machine time)
Variable Selling and Administrative costs of $1.50 per gallon
The company’s Fixed Costs for the quarter include the following:
Manufacturing Overhead $47,500
Selling and Administrative $28,900
The company’s fixed manufacturing overhead per gallon is $______. (The Fixed Manufacturing Overhead rate is based on Fixed Costs for the quarter and the units produced for the quarter.)
The company’s manufacturing overhead is applied based on the number of gallons produced using the Variable Manufacturing Overhead Rate per gallon calculated in ‘b’ and the Fixed Manufacturing Overhead Rate per gallon calculated in ‘c’.
Raw Materials Inventory consists entirely of direct materials and, at the beginning of the year, consists of 500 units of direct material at a cost of $1.50 per unit. The company purchased 48,000 units of direct material at a cost of $1.50 per unit. Each gallon of lemonade requires one unit of direct materials.
Beginning Work in process inventory consists of 700 gallons of partially processed lemonade. All raw materials are added at the beginning of the production process and these partially completed units are 60% complete with respect to conversion costs. Ending work in process consists of 800 gallons of partially processed lemonade that are 50% complete with respect to conversion costs. The company completed and transferred out 47,500 units this quarter.
The beginning work in process and current period costs are as follows:
Beginning WIP
Direct Materials $1,050
Conversion Costs $1,890
Current period Costs
Direct Materials $71,400
Conversion Costs $213,660
There are 300 gallons of lemonade in Finished Goods Inventory at the beginning of the year carried at a cost of $6.00. There are 1,800 gallons in ending Finished Goods Inventory carried at a cost of $6.00 per unit.
You are required to prepare all of the following:
1. A Production Cost Report using the FIFO method of assigning costs to goods transferred out and ending inventory. (50 points)
2. Schedule of Cost of Goods Manufactured and a Schedule of Cost of Goods Sold. (50 points)
3. Gross Margin and Contribution Margin Income Statements. (50 points)
4. A Break-Even Analysis that includes all of the following components (HINT: Use the information from parts a, b, and c above for your calculations). (50 points)
4a. Break-Even in gallons and dollars
4b. Target Profit in gallons and dollars if the company wants a net operating income of $250,000 after taxes. The tax rate is 20%.
4c. Margin of Safety expressed in dollars, units, and as a percentage of sales.
Explanation / Answer
4a. Calculation of Direct Labor Per gallon: 8 / 4 = $2
Variable MOH per Gallon = 2 / 4 x 3 = $1.5
Fixed manufacturing O/H per gallon = 47,500/ 47,500 = $1 per gallon
Calculation of Contribution Margin:
Total Fixed cost = 47,500 + 28,900 = $76,400
Break Even Point in Units = Fixed Cost / Contribution Per Unit
Break Even Point = 76,400 / 10 = 7,640 Gallon
Break Even Point in $ = 7,640 x 15 = $114,600
4b. Sales to earn a target profit of $250,000 after tax.
Target Profit Before Tax = 250,000 / 80 x 100 = $312,500
Contribution Per Unit = $10
Sales in Units required to earn the target profit: BEP Sales + 312,500 / 10
Sales in Units = 7,640 + 31,250 = 38,890 Units
In $ = 38,890 x 15 = $583,350
c. Margin of Safety = Actual Sales - BEP Sales
MOS = 583,350 - 114,600 = $468,750
In Units = 468,750 / 15 = 31,250 Units
As % = 114,600 / 468,750 = 24.45%
Amount Selling Price Per Unit 15 Less: Material Cost 1.50 Direct Labor 2 Variable Manufacturing O/H 1.50 Contribution Margin Per gallon 10Related Questions
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