Sorrentino Company, which has been in business for one year, manufactures specialty Italian pastas. The pasta...

  
 
 

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Sorrentino Company, which has been in business for one year, manufactures specialty Italian pastas. The pasta products start in the mixing department, where durum flour, eggs, and water are mixed to form dough. The dough is kneaded, rolled flat, and cut into fettucine or lasagna noodles, then dried and packaged. Paul Gilchrist, controller for Sorrentino Company, is concerned because the company has yet to make a profit. Sales were slow in the first quarter but really picked up by the end of the year. Over the course of the year, 717,500 boxes were sold. Paul is interested in determining how many boxes must be sold to break even. He has begun to determine relevant fixed and variable costs and has accumulated the following per unit data: Price Direct materials Direct labor $0.95 0.35 0.25 He has had more difficulty separating overhead into fixed and variable components. In examining overhead-related activities, Paul has noticed that machine hour appears to be closely correlated with units in that 100 boxes of pasta can be produced per machine hour. Setups are important batch-level activity. Paul also thinks that indirect labor hour may be associated with the overhead expense, but there is no evidence showing the relation. Currently, indirect labor hour is scheduled to be 2000 hours per year. Paul has accumulated the following information on overhead costs, number of setups, machine hours, and indirect labor hours for the past 12 months. Month January February March April May June July August September October November December Overhead $5,700 4,500 4,890 5,500 6,320 5,100 5,532 5,409 5,300 4,950 5,350 5,600 Number of Setups Machine Hours 18 6 PASODHAIDHH 12 15 20 10 16 12 11 12 14 14 595 560 575 615 680 552 630 600 635 525 593 615 Indirect Labor Hours 155 135 125 200 240 183 205 115 162 145 185 150 Selling and administrative expenses, all fixed, amounted to $200,000 last year. In the second year of operations, Sorrentino Company has decided to expand into the production of sauces to top its pastas. Sauces are also started in the mixing department, using the same equipment. The sauces are mixed, cooked, and packaged into plastic containers. One jar of sauce is priced at $2 and required $0.65 of direct materials and $0.45 of direct labor. 60 jars of sauce can be produced per machine hour. The production manager believes that with careful scheduling, he can keep the total number of setups and total number of indirect labor hours (for both pasta and sauce) to the same number as used last year. The marketing director expects to increase selling expense by $30,000 per year to promote the new product and believes Sorrentino Company can sell three boxes of pasta for every one jar of sauce. Suppose that the production manager is wrong and that the number of setups doubles. Calculate the new break-even number of boxes of pasta and jars of sauce. Sorrentino Company, which has been in business for one year, manufactures specialty Italian pastas. The pasta products start in the mixing department, where durum flour, eggs, and water are mixed to form dough. The dough is kneaded, rolled flat, and cut into fettucine or lasagna noodles, then dried and packaged. Paul Gilchrist, controller for Sorrentino Company, is concerned because the company has yet to make a profit. Sales were slow in the first quarter but really picked up by the end of the year. Over the course of the year, 717,500 boxes were sold. Paul is interested in determining how many boxes must be sold to break even. He has begun to determine relevant fixed and variable costs and has accumulated the following per unit data: Price Direct materials Direct labor $0.95 0.35 0.25 He has had more difficulty separating overhead into fixed and variable components. In examining overhead-related activities, Paul has noticed that machine hour appears to be closely correlated with units in that 100 boxes of pasta can be produced per machine hour. Setups are important batch-level activity. Paul also thinks that indirect labor hour may be associated with the overhead expense, but there is no evidence showing the relation. Currently, indirect labor hour is scheduled to be 2000 hours per year. Paul has accumulated the following information on overhead costs, number of setups, machine hours, and indirect labor hours for the past 12 months. Month January February March April May June July August September October November December Overhead $5,700 4,500 4,890 5,500 6,320 5,100 5,532 5,409 5,300 4,950 5,350 5,600 Number of Setups Machine Hours 18 6 PASODHAIDHH 12 15 20 10 16 12 11 12 14 14 595 560 575 615 680 552 630 600 635 525 593 615 Indirect Labor Hours 155 135 125 200 240 183 205 115 162 145 185 150 Selling and administrative expenses, all fixed, amounted to $200,000 last year. In the second year of operations, Sorrentino Company has decided to expand into the production of sauces to top its pastas. Sauces are also started in the mixing department, using the same equipment. The sauces are mixed, cooked, and packaged into plastic containers. One jar of sauce is priced at $2 and required $0.65 of direct materials and $0.45 of direct labor. 60 jars of sauce can be produced per machine hour. The production manager believes that with careful scheduling, he can keep the total number of setups and total number of indirect labor hours (for both pasta and sauce) to the same number as used last year. The marketing director expects to increase selling expense by $30,000 per year to promote the new product and believes Sorrentino Company can sell three boxes of pasta for every one jar of sauce. Suppose that the production manager is wrong and that the number of setups doubles. Calculate the new break-even number of boxes of pasta and jars of sauce.

Answer rating: 100% (QA)

Total Overheads for the year before expansion 64151 Total Machin... View the full answer