In: Accounting
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.
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