Question

In: Accounting

The Abruzzi Olive Oil Company is a small producer of premium olive oil. Cheryl Sounders, the...

The Abruzzi Olive Oil Company is a small producer of premium olive oil. Cheryl Sounders, the owner of Abruzzi, is currently developing a budget spreadsheet to explore the impact of various sales goals on production.

Month Sales

January 9,200

February. 9,000

March 9,400

April 8,600

May 8,000

June 8,500

July 8,200

August 7,500

September 8,900

October 9,300

November 9,200

December. 9,600

At a planning meeting in November 2020, Jay Peters, the marketing manager for Abruzzi, told Cheryl that he expected monthly sales to increase by 5 to 15 percent in the coming year. But in late december 2020, Jay rushed into cheryl's office with some good news. "cheryl, I just had a meeting with Consolidated Resturaunts, and they are considering an order for 1,250 gallons each month for all of 2021."

"Gosh," Cheryl replied. "that's an exciting bit of news, but I'm concerned about whether we have the capacity to accept such a large order. Ill prepare budgets assuming we don't get the Consolidated business but we increase monthly sales by 5, 10, or 15 percent. Then ill assume the consolidated order comes through, and on top of that we have monthly increases of 5, 10, and 15 percent/ This should give us a good idea of whether well bump up against capacity." Jay thought that this sounded fine, but he wondered whether Cheryl had the time to do this much work. Cheryl indicated that the analysis was relatively easy since she was preparing the budget on a spreadsheet and each analysis would require only a simple change.

A. Using a spreadsheet, prepare the six monthly budget schedule that Cheryl suggested (i.e. monthly budgets with and without the consolidated business assuming other sales increases of 5,10, and 15 percent). As a general rule, Cheryl likes to have ending inventory equal to 12 percent of next month's sales. Assume that the company ended 2020 with an inventory of 1,500 gallons of olive oil. In order to calculate ending inventory at the end of December 2021, assume that sales in January 2022 will be the same as December 2021 sales.

b. Suppose that capacity is 12,000 gallons. Is the company likely to encounter a capacity problem?

c. Abruzzi sells its oil for $25 per gallon. The variable cost per gallon is $10. What will be the annual impact on profit of obtaining the consolidated business (assuming that there is no capacity problem)?

Solutions

Expert Solution


ekkarill92 answered 2 years ago
Next > < Previous

Related Solutions

ABRUZZI OLIVE OIL COMPANY Abruzzi Olive Oil Company is a small producer of premium olive oil....
ABRUZZI OLIVE OIL COMPANY Abruzzi Olive Oil Company is a small producer of premium olive oil. Cheryl Sounders, the owner of Abruzzi, is currently developing a budgets spreadsheet to explore the impact of various sales goals on production. In 2017, the company had monthly sales as follows: January 9200 February 9000 March 9400 April 8600 May 8000 June 8500 July 8200 August 7500 September 8900 October 9300 November 9200 December 9600 At a planning meeting in November 2017, Jay Peters,...
Rosehut Olive Oil Company makes two grades of olive oil: standard and extra virgin. Rosehut has...
Rosehut Olive Oil Company makes two grades of olive oil: standard and extra virgin. Rosehut has identified two activity cost pools, the related costs per pool, the cost driver for each pool, and the expected usage for each pool. Activity Total Activity Cost Cost Driver Standard Extra Virgin Washing, Pressing & Filtering (WPF) $ 1,673,150 Washing, Pressing, and Filtering hours 46,400 hours 107,100 hours Bottling $ 706,500 Number of bottles 314,000 bottles 78,500 bottles Additional information about each grade of...
In its first year of business, Ollie’s Olive Oil produced 104,000 quarts of olive oil. During...
In its first year of business, Ollie’s Olive Oil produced 104,000 quarts of olive oil. During its first year, the company sold 100,000 quarts of olive oil. Costs incurred during the year were as follows: Ingredients used $228,800 Direct labor 104,000 Variable overhead 197,600 Fixed overhead 98,800 Variable selling expenses 50,000 Fixed selling and administrative expenses 20,000 Total actual costs $699,200 a. 1. What was the actual production cost per quart under variable costing? 2. What was the actual production...
Slick Corporation is a small producer of synthetic motor oil. During May, the company produced 5,000...
Slick Corporation is a small producer of synthetic motor oil. During May, the company produced 5,000 cases of lubricant. Each case contains 12 quarts of synthetic oil. To achieve this level of production, Slick purchased and used 16,500 gallons of direct materials at a cost of $20,774. It also incurred average direct labor costs of $14 per hour for the 4,160 hours worked in May by its production personnel. Manufacturing overhead for the month totaled $9,743, of which $2,200 was...
Slick Corporation is a small producer of synthetic motor oil. During May, the company produced 5,000...
Slick Corporation is a small producer of synthetic motor oil. During May, the company produced 5,000 cases of lubricant. Each case contains 12 quarts of synthetic oil. To achieve this level of production, Slick purchased and used 16,500 gallons of direct materials at a cost of $20,011. It also incurred average direct labor costs of $13 per hour for the 3,935 hours worked in May by its production personnel. Manufacturing overhead for the month totaled $9,116, of which $2,200 was...
Slick Corporation is a small producer of synthetic motor oil. During May, the company produced 5,000...
Slick Corporation is a small producer of synthetic motor oil. During May, the company produced 5,000 cases of lubricant. Each case contains 12 quarts of synthetic oil. To achieve this level of production, Slick purchased and used 16,500 gallons of direct materials at a cost of $20,365. It also incurred average direct labor costs of $15 per hour for the 3,807 hours worked in May by its production personnel. Manufacturing overhead for the month totaled $9,115, of which $2,200 was...
Slick Corporation is a small producer of synthetic motor oil. During May, the company produced 5,000...
Slick Corporation is a small producer of synthetic motor oil. During May, the company produced 5,000 cases of lubricant. Each case contains 12 quarts of synthetic oil. To achieve this level of production, Slick purchased and used 16,500 gallons of direct materials at a cost of $20,011. It also incurred average direct labor costs of $13 per hour for the 3,935 hours worked in May by its production personnel. Manufacturing overhead for the month totaled $9,116, of which $2,200 was...
Slick Corporation is a small producer of synthetic motor oil. During May, the company produced 5,000...
Slick Corporation is a small producer of synthetic motor oil. During May, the company produced 5,000 cases of lubricant. Each case contains 12 quarts of synthetic oil. To achieve this level of production, Slick purchased and used 16,500 gallons of direct materials at a cost of $20,716. It also incurred average direct labor costs of $14 per hour for the 4,003 hours worked in May by its production personnel. Manufacturing overhead for the month totaled $9,073, of which $2,200 was...
Slick Corporation is a small producer of synthetic motor oil. During May, the company produced 5,000...
Slick Corporation is a small producer of synthetic motor oil. During May, the company produced 5,000 cases of lubricant. Each case contains 12 quarts of synthetic oil. To achieve this level of production, Slick purchased and used 16,500 gallons of direct materials at a cost of $21,005. It also incurred average direct labor costs of $13 per hour for the 4,007 hours worked in May by its production personnel. Manufacturing overhead for the month totaled $9,271, of which $2,200 was...
Slick Corporation is a small producer of synthetic motor oil. During May, the company produced 5,000...
Slick Corporation is a small producer of synthetic motor oil. During May, the company produced 5,000 cases of lubricant. Each case contains 12 quarts of synthetic oil. To achieve this level of production, Slick purchased and used 16,500 gallons of direct materials at a cost of $20,134. It also incurred average direct labor costs of $15 per hour for the 3,927 hours worked in May by its production personnel. Manufacturing overhead for the month totaled $9,069, of which $2,200 was...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT