Jasper Company produces widgets that it sells for $62 each, and Joe Jasper, the owner, is contemplating several ideas to grow his business. He has brought his monthly operating budget to you and has asked you to analyze it for him. SEE BUDGET SPREADSHEET at the bottom of this post.

Each unit requires ½ hour of machine time and direct labor. Assembly workers are paid $20 per hour. The machinery is serviced on a regular schedule based on the number of hours each machine runs.

Case Problems

Prepare a report that addresses the following questions. You can answer the questions in the way that you feel works best, but you must include answers to all 12 questions in your submission, and you must submit your Excel spreadsheet for this mini case.

1. The factory utility cost is a mixed cost. The utilities cost and number of machine-hours are listed on the accompanying EXCEL spreadsheet on the tab “UTILITIES.” Determine a cost equation for utilities using SLOPE and INTERCEPT functions in EXCEL - use it to determine budgeted utility costs for this month based on 10,000 units. (Round slope to the nearest cent and intercept to nearest $10.
2. Classify the remaining costs as fixed or variable, and document your rationale.
3. Use the results of #2 and #3 to prepare a budgeted contribution margin income statement for 10,000 units.
4. Compute contribution margin ratio.
5. How many units does a company need to sell to break even? What is the break-even in sales dollars?
6. Prepare a break-even graph.
7. How many units would have to be sold to achieve an operating income of $20,000?
8. Compute the margin of safety at 10,000 units.
9. If sales volumes increase 20% (from 10,000 units), what are the percentage and dollar amount of increase in profit (use operating leverage to determine)?
10. It is projected an increase of $3,000 in advertising costs will lead to the sale of 200 additional units. Should the company do this? Show computations.
11. Lasko Industries has offered the company $48 for 500 units in one month. If the company accepts this offer, it will not have to pay sales commissions. The company’s capacity is 12,000 units each month, so it will not have to add an additional shift.
    1. Should the company accept the offer? Provide computations.
    2. What are some of the qualitative issues management should consider in making this decision?
12. Classify costs as product or period costs and determine the manufacturing cost per unit.

Reference

Monthly budget for 10,000 units.
Administrative Salaries	$ 30,000
Advertising	15,000
Assembly labor	100,000
Building rent and janitorial costs (80% related to factory)	20,000
Equipment depreciation	18,000
Factory supplies	4,500
Factory utilities (requirement 1)	???
Insurance (60% related to factory)	8,000
Machine Maintenance	16,100
Material	335,000
Office supplies	2,400
Office utilities	1,200
Sales Commissions	18,600
Sales Salaries	20,000
Supervisors	12,000
Telephone and internet	1,500
	602,300

Answer rating: 100% (QA)

55 1 Machine Hours Utility Cost 56 4240 3350 57 4310 3500 58 5630 4200 59 ... View the full answer