Question

Shasta Hills, a winery in British Columbia, manufactures a premium white cabernet and sells primarily to distributors. Wine is sold in cases of one dozen bottles. In the year ended December 31, 2013, Shasta Hills sold 242,400 cases at an average selling price of $112.80 per case. The following additional data are for Shasta Hills for the year ended December 31, 2013 (assume constant unit costs and no price, rate, or efficiency variances):
Beginning inventory, January 1, 2013 ........ 32,600 cases
Ending inventory, December 31, 2013 ........ 24,800 cases
Fixed manufacturing overhead ........... $4,504,320
Fixed operating costs ............... $7,882,560
Variable costs per case:
Direct materials
Grapes .................... $19.20 per case
Bottles, corks, and crates ............. $12.00 per case
Direct labour
Bottling .................... $7.20 per case
Winemaking ................. $16.80 per case
Aging .................... $2.40 per case
On December 31, 2013, the unit costs per case for closing inventory are $55.20 for variable costing and $73.20 for absorption costing.
REQUIRED
1. Calculate cases of production for Shasta Hills in 2013.
2. Find the breakeven point (number of cases) in 2013:
a. Under variable costing.
b. Under absorption costing.
3. Grape prices are expected to increase 25% in 2014. Assuming all other data remain constant, what is the minimum number of cases Shasta Hills must sell in 2014 to break even? Calculate the breakeven point:
a. Under variable costing.
b. Under absorption costing.
4. Assume the owners of Shasta Hills want to increase 2014 operating income 10% over 2013 levels. Using the same data as in requirement 3, recalculate the target quantity of cases under variable and absorption costing. Use approximation method re absorption costing.


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  • CreatedJuly 31, 2015
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