The purpose of this case study is to help you integrate the managerial accountin
ID: 2798625 • Letter: T
Question
The purpose of this case study is to help you integrate the managerial accounting concepts that were covered in class and apply them to a real-world business setting. Business Description You will assume the role of an entrepreneur starting a small company. Your company will produce and sell gourmet cupcakes through a storefront in a location of your choice. Your business is scheduled to launch on January 1, 2018. Cost information: 1 Cost of goods sold: a. Ingredients are .30 per cupcake b. Boxes and Cupcake Cups are .05 per cupcake 2 Equipment that will be required to be acquired at the start of business includes ovens, racks, display case, counter, cash register, and other baking equipment and will cost $140,000. The equipment is expected to last 10 years without salvage value. Straight-line method of depreciation should be used. 3 On average one person can make, bake, and decorate 24 cupcakes per hour. Bakers are paid $15.00 per hour. 4 Sales personnel are required for 56 hours per week and are paid $10.00 per hour. 5 Monthly rent, which includes utilities, is $1,500. 6 Business insurance is purchased at a cost of $1,000 per year. 7 Advertising costs are expected to be $6,000 per year.
If sales could increase by 10% (to 39,600 cupcakes), by how much in dollars would net operating income increase? By what percentage would net operating income increase? Use the formula for leverage to calculate (5 points).
Prepare a contribution format income statement assuming sales of 39,600 cupcakes (10 points).
Price Per Unit $4.58
Explanation / Answer
If sales could increase by 10% (to 39,600 cupcakes), by how much in dollars would net operating income increase? By what percentage would net operating income increase? Use the formula for leverage to calculate:
If after the 10% increase, the number of cupcakes sold is 39,600, then prior to increase, the number of cupcakes sold will be: 39600/(1+0.10) = 36000.
Operating Profit = Operating Revenue - COGS - Operating Expenses - Depreciation and Amortization
% increase = (76878-63900/63900)*100 = 20.31%
*1: Baker's salary:
Time required to produce 36000 cupcakes =39600/24 = 1500 hours. For 1500 hours, salary = 1500*15 = 22500
Time required to produce 39600 cupcakes =39600/24 = 1650 hours. For 1650 hours, salary = 1650*15 = 24750.
*2. Depreciation oer annum = 140,000/10 = 14000.
*3: Sales personnel salary = $ 10 per hour*56 hours/week* 4 weeks/month*12 months/year = $26,880
Prepare a contribution format income statement assuming sales of 39,600 cupcakes (10 points):
Per unit For 36000 units For 39600 units Sales 4.58 164,880 181,368 COGS: Ingredients (0.30) (10,800) (11,880) boxes and cups (0.05) (1,800) (1,980) Contribution 4.23 152,280 167,508 Baker salary*1 (22,500) (24,750) Depreciation*2 (14,000) (14,000) Sales personnel salary*3 (26,880) (26,880) Rent (yearly) (18,000) (18,000) Insurance (1,000) (1,000) Advertising costs (6,000) (6,000) Operating Profit 63,900 76,878Related Questions
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