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

Question

The Juicy Company manufactures flavored organic lemonade. Management is ready to close the books for the end of the 1st quarter in 2013 and your supervisor has presented you with fallowing information.

a. Total sales in gallons of flavored lemonade for January 2013 through March 2013 are as fallows:

January 10,000

February 12,000

March 14,000

Each gallon of lemonade is package in eight 16 ounce bottles and sold in a case that sells for $15.00 per case. The company produced 37,500 units during the first quarter of 2013.

b. The company’s Variable Costs include the fallowing

Direct materials of $3.25 per gallon.

Direct labor of $____ per gallon (each gallon of lemonade requires 15 minutes of direct labor time and the wage rate is $8 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 Admin. costs of $1.25 per gallon

c. The company’s fixed costs for the quarter include the following:

Manufacturing Overhead $37,500

Selling and Administrative $26,900

The company’s fixed manufacturing overhead per gallon is $_____ (The Fixed Manufacturing Overhead rate is based on the 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 700 units of direct material at a cost of $3.25 per unit. The company purchased 38,000 units of direct material at a cost of $3.25 per unit. Each gallon of lemonade requires one unit of direct materials.

f. Beginning Work in process inventory consists of 500 gallons of partially processed lemonade. All raw materials are added at the beginning of the production process and theses partially completed units are 60% complete with respect to conversion costs. Ending work in process consists of 800 gallons of partially processed lemonade 40% complete with respect to conversion costs. The company completed and transferred out 37,500 units this quarter.

The beginning work in process and current period costs are as follows:

Beginning WIP:               Direct Materials          $1,625                                          Conversion Cost              $450

Current period costs:    Direct materials         $121,875                                           Conversion Costs    $168,750

g. There are 300 gallons of lemonade in Finished Goods Inventory at the beginning of the year carried at a cost of $7.75. There are 1,800 gallons in ending Finished Goods Inventory carried at a cost of $7.75 per unit.

REQUIRED:

1, A Production Cost Report using both the weighted average and FIFO methods of assigning costs to goods transferred out and ending inventory.

2. Schedule of Costs of Goods manufactured and a Scheduled of Cost of Goods Sold using both methods of assigned costs to goods transferred out and ending inventory.

3. Gross Margin and Contribution Margin Income Statement (Hint: For the Gross Margin Income Statement, Total Cost of Goods Sold should equal to the Cost of Goods Sold calculated based on the FIFO method of assigning to goods transferred out and ending inventory).

4. A Break-Even Analysis that include all of the fallowing components (HINT: Use the information in parts a, b, and c for calculations)

a. Break-Even in gallons and dollars

b. Target Profit in gallons and dollars if company wants a net operating income of $250,000 after taxes. Tax rate is 20%.

c. Margin of Safety expressed in dollars, units, and as percentage of sales.

Explanation / Answer

Juicy Company jan feb mar qtr Sales in gallons 10000 12000 14000 36000 No bottles (16 ounce) 80000 96000 112000 288000 No of cases 80000 96000 112000 288000 Sales in $ @ 15 1200000 1440000 1680000 4320000 Production (gallons) 37500 Production Cost Direct Materials @ 3.25 37800 Unit 122850 Direct labour @ 8/4 500*.4+37000*1+800*.4=37520 75040 2.00 Variable MOH @ 2*45/60 37520 56280 1.50     Variable cost of prodn 254170 Fixed MOH 37500 1.00 Works Cost 37800 291670 Add: Opening WIP 500 2075 38300 293745 Less: Closing WIP 3.25+3.5*.4=4.65 800 3720 Cost of Production 37500 290025 7.734 Beginning Inventory of Finished goods 300 2325 7.75 37800 292350 Less: Closing FG 1800 13950 7.75 Cost of Goods sold 36000 278400 7.73 Variable Selling and Admn @ 1.25 45000 Fixed SAOH 26900 Cost of Sales 350300 9.73 THE ABOVE CALCULATIONS ARE ON WEIGHTED AVERAGE BASIS In the case of FIFO Cost of Production Opening WIP 500 2075 Add conversion cost @ 3.5*.4 700 Units introduced and converted fully 37000 7.75 286750 Cost of Production 37500 289525 7.72 Closing WIP 800 4.65 3720 293245 Cost of Goods sold Opening Balance 300 7.75 2325 From production during the year 35700 289525 8.11 291850 8.11

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