It is December and you have just been hired as an accountant by the Sweetwater Candy...

Transcribed Image Text:

It is December and you have just been hired as an accountant by the Sweetwater Candy Company operating in Fort Collins. Sweetwater is a boutique candy maker that produces only one specialty product: boxes of assorted chocolates that include a regional favorite using Colorado peaches for the filling. These chocolates have become favorites of locals and tourists. The Sweetwater Candy Company produces its chocoates at a small facility in Fort Collins Sweetwater sells each unit for $25 per box. (1 unit = 1 box of chocolates) You have been asked to get involved with the budget preparation for next year and to use the information to make decisions. The budget process is already underway, and the accounting team has worked with the sales and marketing team to develop the following sales budget for next year: $25.00 Selling price per unit Units Dollar Sales January 1,200 $30,000 February 1,000 $25,000 March 1,600 $40,000 April 1,400 $35,000 May 1,800 $ 45,000 June July 2,500 $62,500 3,500 $87,500 August September October November 3,000 $75,000 2,700 $67,500 2,000 $50,000 1,800 $45,000 2,500 $62,500 December Total Annual Sales 25,000 $625,000 Work through the worksheets in this Excel workbook to complete the required calculations and analyses. Provide explanations as instructed. It is now February and management is looking ahead to the summer tourist season. Sweetwater's management is considering adding a new item to its current assorted box of chocolates. The new item would be a cherry cordial (i.e., chocolate covered cherry) using Colorado cherries. Management believes that including two different chocolates from Colorado sources (peaches and cherries) will make the product more marketable to tourists. Three (3) cherry cordials would be included in each box of assorted chocolates. Management is considering whether it should produce the cherry cordials or outsource production to a local manufacturer. MAKE: If Sweetwater decides to make the cherry cordials and include 3 per box, the incremental estimated variable costs per unit (per box of chocolates) would be: Direct materials Direct labor Indirect materials (variable overhead) $0.42 $0.67 $0.80 Sweetwater would also have to purchase equipment and make some renovations to the building. These costs would add $2,000 per year of fixed costs as factory-related depreciation. Sweetwater's management believes that it will be able to reduce its cost of variable overhead after the first couple of years of producing the cherry cordials. Sweetwater would include 3 cherry cordials in each box which would allow it to remove 3 pieces of other filled chocolates from the box. Removing 3 pieces will save $1.77 in variable costs per box. For each requirement, please add your name in the SOLUTION row for requirements that you prepared the solution. Add your name in the REVIEW row for requirements that you reviewed. If you do not agree with the solution, leave comments for your teammate explaining how you would fix it. Do not add your name in the REVIEW cell until you agree with the solution. SOLUTION: REVIEW: Comments: (A.) (B.) BUY: Sweetwater can have a local manufacturer produce the cherry cordials using Sweetwater's recipe and production guidelines at a cost of $0.40 each (for one cherry cordial). Sweetwater will also incur an additional $1.00 of direct labor costs per box if it buys the cherry cordials because someone will have to unpack them from the manufacturer and manually put 3 pieces in each box of chocolates. Required: (A.) Prepare a make or buy analysis of costs for the cherry cordials. NOTE: Prepare the analysis for an entire year with sales of 25,000 units. (B.) How would you advise Sweetwater's management on the make-or-buy decision? Explain. It is December and you have just been hired as an accountant by the Sweetwater Candy Company operating in Fort Collins. Sweetwater is a boutique candy maker that produces only one specialty product: boxes of assorted chocolates that include a regional favorite using Colorado peaches for the filling. These chocolates have become favorites of locals and tourists. The Sweetwater Candy Company produces its chocoates at a small facility in Fort Collins Sweetwater sells each unit for $25 per box. (1 unit = 1 box of chocolates) You have been asked to get involved with the budget preparation for next year and to use the information to make decisions. The budget process is already underway, and the accounting team has worked with the sales and marketing team to develop the following sales budget for next year: $25.00 Selling price per unit Units Dollar Sales January 1,200 $30,000 February 1,000 $25,000 March 1,600 $40,000 April 1,400 $35,000 May 1,800 $ 45,000 June July 2,500 $62,500 3,500 $87,500 August September October November 3,000 $75,000 2,700 $67,500 2,000 $50,000 1,800 $45,000 2,500 $62,500 December Total Annual Sales 25,000 $625,000 Work through the worksheets in this Excel workbook to complete the required calculations and analyses. Provide explanations as instructed. It is now February and management is looking ahead to the summer tourist season. Sweetwater's management is considering adding a new item to its current assorted box of chocolates. The new item would be a cherry cordial (i.e., chocolate covered cherry) using Colorado cherries. Management believes that including two different chocolates from Colorado sources (peaches and cherries) will make the product more marketable to tourists. Three (3) cherry cordials would be included in each box of assorted chocolates. Management is considering whether it should produce the cherry cordials or outsource production to a local manufacturer. MAKE: If Sweetwater decides to make the cherry cordials and include 3 per box, the incremental estimated variable costs per unit (per box of chocolates) would be: Direct materials Direct labor Indirect materials (variable overhead) $0.42 $0.67 $0.80 Sweetwater would also have to purchase equipment and make some renovations to the building. These costs would add $2,000 per year of fixed costs as factory-related depreciation. Sweetwater's management believes that it will be able to reduce its cost of variable overhead after the first couple of years of producing the cherry cordials. Sweetwater would include 3 cherry cordials in each box which would allow it to remove 3 pieces of other filled chocolates from the box. Removing 3 pieces will save $1.77 in variable costs per box. For each requirement, please add your name in the SOLUTION row for requirements that you prepared the solution. Add your name in the REVIEW row for requirements that you reviewed. If you do not agree with the solution, leave comments for your teammate explaining how you would fix it. Do not add your name in the REVIEW cell until you agree with the solution. SOLUTION: REVIEW: Comments: (A.) (B.) BUY: Sweetwater can have a local manufacturer produce the cherry cordials using Sweetwater's recipe and production guidelines at a cost of $0.40 each (for one cherry cordial). Sweetwater will also incur an additional $1.00 of direct labor costs per box if it buys the cherry cordials because someone will have to unpack them from the manufacturer and manually put 3 pieces in each box of chocolates. Required: (A.) Prepare a make or buy analysis of costs for the cherry cordials. NOTE: Prepare the analysis for an entire year with sales of 25,000 units. (B.) How would you advise Sweetwater's management on the make-or-buy decision? Explain.