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Juicy Lemonade Company The Juicy Lemonade Company manufactures premium flavored organic lemonade. Management is ready to...

Juicy Lemonade Company The Juicy Lemonade Company manufactures premium flavored organic lemonade. Management is ready to close the books for the end of the first quarter in 2019 and your supervisor has presented you with the following information. a. Total sales in gallons of flavored lemonade for January 2019 through March 2019 are as follows: January 14,000 February 15,000 March 17,000 Each gallon of lemonade is packaged in eight 16 ounce bottles and sold in a case that sells for $15.00 per case. The company produced 47,500 units during the first quarter of 2018. b. The company’s Variable Costs include the following Direct Materials of $1.50 per gallon Direct Labor of $____ per gallon (Each gallon of lemonade requires 15 minutes of direct labor time and the wage rate is $8.00 per hour) Variable MOH $_____per gallon (The variable overhead rate is $2.00 per machine hour and processing one gallon of lemonade takes 45 minutes of machine time) Variable Selling and Administrative costs of $1.50 per gallon c. The company’s Fixed Costs for the quarter include the following: Manufacturing Overhead $47,500 Selling and Administrative $28,900 The company’s fixed manufacturing overhead per gallon is $______. (The Fixed Manufacturing Overhead rate is based on Fixed Costs for the quarter and the units produced for the quarter.) d. The company’s manufacturing overhead is applied based on the number of gallons produced using the Variable Manufacturing Overhead Rate per gallon calculated in ‘b’ and the Fixed Manufacturing Overhead Rate per gallon calculated in ‘c’. e. Raw Materials Inventory consists entirely of direct materials and, at the beginning of the year, consists of 500 units of direct material at a cost of $1.50 per unit. The company purchased 48,000 units of direct material at a cost of $1.50 per unit. Each gallon of lemonade requires one unit of direct materials. f. Beginning Work in process inventory consists of 700 gallons of partially processed lemonade. All raw materials are added at the beginning of the production process and these partially completed units are 60% complete with respect to conversion costs. Ending work in process consists of 800 gallons of partially processed lemonade that are 50% complete with respect to conversion costs. The company completed and transferred out 47,500 units this quarter. The beginning work in process and current period costs are as follows Beginning WIP Direct Materials $1,225 Conversion Costs $1,995 Current period Costs Direct Materials $71,250 Conversion Costs $213,750 g. There are 300 gallons of lemonade in Finished Goods Inventory at the beginning of the year carried at a cost of $6.00. There are 1,800 gallons in ending Finished Goods Inventory carried at a cost of $6.00 per unit. You are required to prepare all of the following: 1. A Production Cost Report using both the weighted average and FIFO methods of assigning costs to goods transferred out and ending inventory. (50 points) 2. Schedule of Cost of Goods Manufactured and a Schedule of Cost of Goods Sold using both methods of assigning costs to goods transferred out and ending inventory. (50 points) 3. Gross Margin and Contribution Margin Income Statements (HINT: For the Gross Margin Income Statement, Total Cost of Goods Sold should be equal to the Cost of Goods Sold calculated based on the FIFO method of assigning costs to goods transferred out and ending inventory). (50 points) 4. A Break-Even Analysis that includes all of the following components (HINT: Use the information from parts a, b, and c above for your calculations) (50 points) 4a. Break-Even in gallons and dollars 4b. Target Profit in gallons and dollars if the company wants a net operating income of $250,000 after taxes. The tax rate is 20%. 4c. Margin of Safety expressed in dollars, units, and as a percentage of sales.

Solutions

Expert Solution

A) TOTAL GALLONS PRODUCED IN FIRST QUARTER OF 2019.

PARTICULARS GALLONS
JAN 19 14000
FEB 19 15000
MAR 19 17000
TOTAL 46000

1 Gallon old in 1 case of 8 bottles for $15/case. Therefore total revenue in all 3 months = 46000* 15 = $690000

B) VARIABLE COST STRUCTURE PER GALLON

PARTICULARS $
Direct material 1.50
Direct labour (8*15/60) 2.00
Variable manufacturing overhead (2*45/60) 1.50
Variable Selling and Administrative costs 1.50
TOTAL VARIABLE COSTS 6.50

C) Company's fixed manufacturing overhead rate = Manufacturing overhead/no. of gallons

= 47500/46000 = $ 1.0326

D) Company's manufacturing overhead applied on gallons = 1.50+1.0326 = 2.5326

E) SCHEDULE SHOWING CLOSING INVENTORY OF RAW MATERIALS

Particulars Units Weighted avg cost per unit ($) Weighted avg cost ($) FIFO cost per unit ($) FIFO Total cost ($)
Opening inventory 500 1.50 750 1.50 750
+ Purchases 48000 1.50 72000 1.50 72000
- Sent to Production 47600
Closing inventory 900 1.50 1350 1.50 1350

CLOSING INVENTORY OF GALLON

Particulars Units Cost p.u TotalCost
Opening inventory 300 6 1800
+ Goods Completed 47500
- Closing inventory 1800 6 (10800)
Cost of Goods Sold 46000

1) PRODUCTION COST REPORT AS PER WEIGHTED AVG

Particulars Units DM % DM Cost Conversion cost % CC
Opening WIP 700 0% 0 40% 798
+ RM received 47600 100% 71250 100% 213750
Total 48300 71250 214548
Closing WIP 800 100% 1187 50% 1792
Goods manufactured 47500 100% 70063 100% 212756
Total 48300 71250 47900 214548
per unit Cost 1.475 4.479

Therefore per unit = 1.475+4.479 = 5.954

  PRODUCTION COST REPORT AS PER FIFO

Particulars Units DM % DM Cost Conversion cost % CC
Opening WIP 700 0% 0 40% 798
+ RM received 47600 100% 71250 100% 213750
Total 48300 71250 214548
Goods manufactured: cost from opening 700 0 0 798
cost from RM 46800 100% 70060 100% 211939
Closing WIP 800 100% 1190 50% 1811
Total 71250 47200 214548
per unit Cost 1.497 4.5286

2) SCHEDULE OF COST OF GOODS MANUFACTURED (47,500 UNITS)

PARTICULARS P.U. COST TOTAL COST AS PER WEIGHTED AVG TOTAL COST AS PER FIFO
DIRECT MATERIAL 70063 70060
+ CONVERSION COST 212756 212737
TOTAL VARIABLE COSTS 282819 282797
FIXED MANUFACTURING OVERHEAD 1.0326 49049 49049
TOTALCOST 331868 331846

SCHEDULE OF COST OF GOODS SOLD (46000 UNITS)

PARTICULARS P.U. COST TOTAL COST AS PER WEIGHTED AVG TOTAL COST AS PER FIFO
DIRECT MATERIAL 70063 70060
+ CONVERSION COST 212756 212737
+FIXED MANUFACTURING OVERHEAD 49049 49049
+VARIABLE SELLING COSTS 1.50 69000 69000
+ FIXED SELLING COST 28900 28900
+COST OF OPENING INVENTORY 1800 1800
-COST OF CLOSING INVENTORY (10800)

(10800)

VALUE OF COST OF GOODS SOLD 420768 420746

3) GROSS MARGIN = REVENUE - COST = 690000-420746 = 269254. PROFIT PER UNIT = PROFIT/ GALLONS

4A) BREAK EVEN = TOTAL FIXED COSTS/PROFIT PER UNIT


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