Question

In: Accounting

Backyard Bulldog Barbecue Sauces, Inc., founded by Jefe Allen, produces a variety of barbecue sauces for...

Backyard Bulldog Barbecue Sauces, Inc., founded by Jefe Allen, produces a variety of barbecue sauces for use in outdoor grilling. Jefe is having difficulty understanding the relationship between different types of costs, revenue and profit. Jefe has asked you to clarify this issue for him by answering the following questions.

1. Define the different types of costs that Backyard Bulldog Barbecue Sauces, Inc. will incur along with several examples of each.

2. How could overly optimistic sales estimates potentially harm Jefe's business?

3. Explain how cost-volume-profit analysis can help Jefe make good managerial decisions regarding Backyard Bulldog Barbecue Sauces, Inc.?

Solutions

Expert Solution

1.

Manufacturing costs - Cost of all resources consummed in process of manufacturing a product.

Administrative costs - Expenses an organisation incurred not directly linked to manufacturing and selling.

Selling and distribution costs - expenses incured by sales department in marketing and distrubuting the product.

Variable Costs - Cost that varies with level of output

  • Manufacturing costs.. example - Materials.
  • Administrative costs.  example - office supplies.
  • Selling and distribution costs. example - Sales commission.

Fixed Costs - cost that remains constant irrespective of output level

  • Manufacturing costs.. example - Equipment Depreciation
  • Administrative costs.  example - Rent
  • Selling and distribution costs. example - sales salaries

2.
An overly optimistic sales estimates could result finalcial problems.

a) When sales volume increases, fixed cost per units reduces and as a result total cost per unit also reduces.
So, there is possiblity of wrong(reduced) pricing of sales per unit.
If sales target not achieved then it will reduce the total revenue.
As a result,The company might not able to recover its fixed cost and end up in making losses.

b) Unsold inventories are stored as closing inventroy. That means, costs of those inventories won't be recovered.
High volume inventory also increases inventory carrying cost. And
There are possibilities of inventory losses as well.
As a result, the company could face financial losses.

3.

cost-volume-profit analysis or CVP analysis is based on three elements - Cost, volume and profit.
It gives insight into the profitabily of product.
It divides the costs in two category, variabe cost and fixed cost. And
Determines contribution, break even point of cost and volume which is helpful in managerial decision making such as
estimating future costs, volume and profit etc.


Related Solutions

Bulldog, Inc. is a Texas-based audio equipment manufacturer. It produces two kinds of audio speakers. The...
Bulldog, Inc. is a Texas-based audio equipment manufacturer. It produces two kinds of audio speakers. The first kind is a bookshelf speaker, called BSS. The other kind is a floor speaker, called FLS. Both BSS and FLS use cherry wood for speaker body structure. Each BSS uses 2 sheets of cherry wood and each FLS uses 5 sheets of cherry wood for production. Each month Bulldog, Inc. has 600 sheets of cherry wood available for production. According to its metropolitan...
SummerFun, Inc., produces a variety of recreation and leisure products. The production manager has developed an...
SummerFun, Inc., produces a variety of recreation and leisure products. The production manager has developed an aggregate forecast: Month Mar Apr May Jun Jul Aug Sep Total Forecast 50 44 55 60 50 40 51 350 Use the following information to develop aggregate plans. Regular production cost $ 80 per unit Back-order cost $ 20 per unit Overtime production cost $ 120 per unit Beginning inventory 0 units Regular capacity 40 units per month Overtime capacity 8 units per month...
USE THE FOLLOWING INFORMATION FOR THE NEXT 3 QUESTIONS Pearson Inc. produces and sells a variety...
USE THE FOLLOWING INFORMATION FOR THE NEXT 3 QUESTIONS Pearson Inc. produces and sells a variety of household cleaning supplies and equipment including vacuum cleaners and carpet cleaner both of which are sold separately in stores. The carpet cleaning division incurs the following costs for the production of a single bottle of carpet cleaner when 600,000 bottles are produced each year: Direct materials $1.30 Direct labor .50 Variable overhead .25 Fixed overhead     .30 Total cost $2.35 The company sells the...
Double Bounce Trampolines produces two models of trampolines for backyard fun. The “Original”, and the recently...
Double Bounce Trampolines produces two models of trampolines for backyard fun. The “Original”, and the recently introduced “Deluxe”. The Deluxe model introduced several safety features that were intended to scare overly protective parents into upgrading. Since its introduction, the deluxe model has been increasing in sales, but at the same time, the company’s profits have been declining. The CFO believes that the company’s traditional costing system may be to blame. Currently, the company uses direct-labour hours as the basis for...
Investigating Variances. Robotsy, Inc., produces robots sold at a variety of retail stores throughout the world....
Investigating Variances. Robotsy, Inc., produces robots sold at a variety of retail stores throughout the world. Standard cost information for each robot is presented as follows: Direct materials $60.00 Direct labor 40.00 Variable overhead 30.00 Total $130.00 Robotsy produced and sold 100,000 robots for the year and encountered the following production variances: Direct materials price variance (300,000) Favorable Direct materials quantity variance 290,000 Unfavorable Direct labor rate variance (170,000) Favorable Direct labor efficiency variance (140,000) Favorable Variable overhead spending variance...
On 1/1/2012, Tarheel Inc. purchased 40% of Bulldog Inc.’s common stock for $50,000 in cash. At...
On 1/1/2012, Tarheel Inc. purchased 40% of Bulldog Inc.’s common stock for $50,000 in cash. At the date of purchase, Bulldog Inc.’s book value of total assets equaled $200,000 and their book-value of total liabilities equaled $100,000. Bulldog Inc. owned a basket- ball arena that with a book value of $50,000 and a fair market value of $60,000. The remaining useful life of the basketball arena is 10 years. Bulldog’s net income in 2012 was $10,000, and it distributed $5,000...
Palladium Inc. produces a variety of household cleaning products. Palladium's controller has developed standard costs for...
Palladium Inc. produces a variety of household cleaning products. Palladium's controller has developed standard costs for the following four overhead items: Overhead Total Fixed Cost Variable Rate per Item Direct Labor Hour Maintenance $86,200 $0.20 Power 0.55 Indirect labor 139,200 2.20 Rent 35,300 Next year, Palladium expects production to require 80,000 direct labor hours. Required: 1. Prepare an overhead budget for the expected level of direct labor hours for the coming year. 2. Prepare an overhead budget that reflects production...
Saputo Inc. produces, markets, and distributes a wide variety of products, including cheese, fluid milk, yogurt,...
Saputo Inc. produces, markets, and distributes a wide variety of products, including cheese, fluid milk, yogurt, dairy ingredients, and snack cakes. It is the largest dairy processor in Canada and serves customers in over 50 countries.    The following transactions occurred during a recent year. Amounts are in millions of dollars. a. Issued $30 in shares to investors (example). b. Purchased $149 of additional property, plant, and equipment for cash. c. Incurred $309 in selling expenses with two-thirds paid in...
Baggy Green Co. produces cricket kits for amateur and backyard cricket enthusiasts. Last year, the company...
Baggy Green Co. produces cricket kits for amateur and backyard cricket enthusiasts. Last year, the company reached its planned production of 20,000 kits and sold all but 2,000 kits. The kits sell for $50 each. Costs incurred in the production of the kits are as follows: Materials used 40,000 Other Variable production costs 60,000 Fixed production costs 100,000 Variable selling costs 18,000 Fixed selling and administrative costs 100,000 Baggy Green Co. uses a normal costing system. Required: Prepare an income...
Bulldog, Inc., has bought British pound call options at a premium of $.015 per unit, and...
Bulldog, Inc., has bought British pound call options at a premium of $.015 per unit, and an exercise price of $1.569 per unit. It has forecasted the Australian dollar’s lowest level over the period of concern as $1.549, $1.559, $ 1.569, $1.579 and $1.589. Determine the net profit (or loss) per unit to Bulldog, Inc., if each Australia dollar each level occurs (show detailed analysis; follow the five steps in the teaching notes).
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT