Question

Gulpit Limited manufactures two popular high energy drinks for dynamic business professionals, GetUpAndGo and INeedALift. Both drinks are produced on the same assembly lines and are sold in packs of 20 easy to go drinks. The sales of both drinks for 2021 are predicted to be 506 000 packs of GetUpAndGo and 644 000 packs of INeedALift. The budgeted costs for the coming year are as follows.

Variable

cost Materials $650 000 Other $810 000

Fixed cost

$1 610 000 $2 756 000

(Total 13 marks)

Both drinks incur similar variable material costs on a per pack production basis. The fixed costs are apportioned equally between both drinks. The other variable costs are allocated on a machine time basis with GetUpAndGo requiring 253 000 machine hours and INeedALift 161 000 machine hours. Gulpit directors have indicated that they require a profit of $375 600 from the GetUpAndGo line and $486 800 from INeedALift for 2021.

Required
a. Calculatethetotalcostforeachdrink.

b. What price should be charged for each drink?

Answer 1

Total Fixed Costs = $1,610,000 + $2,756,000 = $4,366,000

Calculation of total cost of drinks

Get up and go drink

Materials ( $650,000 * 506,000 / (506,000 + 644,000))

($650,000 * 506,000 / 1,150,000) $286,000

Other Variable Cost ($810,000 * 253,000 / (253,000 + 161,000))

($810,000 * 253,000 / 414,000) $495,000

Fixed Costs ($4,366,000 / 2) $2,183,000

Total Costs for getupandgo drink $2,964,000

IneedA Lift drink

Materials ( $650,000 * 644,000 / (506,000 + 644,000))

($650,000 * 644,000 / 1,150,000) $364,000

Other Variable Cost ($810,000 * 161,000 / (253,000 + 161,000))

($810,000 * 161,000 / 414,000) $315,000

Fixed Costs ($4,366,000 / 2) $2,183,000

Total Costs for getupandgo drink $2,862,000

Calculation of price to be charged

Set up and go drink I need A lift drink

Total Costs $2,964,000 $2,862,000

Profit $375,600 $486,800

Total Sales Value $3,339,600 $3,348,800

Number of packs 506,000 644,000

Sales price per pack 6.6 5.2