Module 66

Cookies.xlsx

Cost Classification

Cookie Company Cost Classification
Fixed Cost	Variable Costs	Mixed Costs
Labor (salaried)	Butter	Utilities
Insuarance Premiums	Sugar	eCommerce
Production facility	Eggs	Electricity
Depreciation Equipment	Milk	Telephone
Rent	Vanilla Extract
Property Taxes	Flour
	Baking Powder
	Direct labor (hourly)

Month	Kilowatt Hours	Electricity Cost
January	1866	$230
February	1439	$202
March	1146	$197
April	1046	$190
May	996	$182
June	1760	$225
Volume	Month	Activity Level (Kilowatts)	Cost
High	January	1866	$230
Low	May	996	$182
Difference		870	$48
Variable Cost per Hour =		$48/870 kilowatts per hour
	=	$0.06
Total fixed cost for January= $230.00-(1866x0.055)
		=$127.37
Total electricity cost per month=$127.37+($0.055*number of units)
		=$118.095
This cost formula can be used for all kilowatt-hours activities
between 996 and 1866

	ABC COOKIES COMPANY
Contribution Margin Income Statement
For the the Year Ended 2017
Sales (200,000 units x 3.25)				650,000
Less Variable Costs of Sales:
Materials			70,000
Direct labor, electricity and ecommerce (65% of $150,000)			97,500	167,500
Contribution Margin				482,500
Less Fixed Cost:
Labor salaried (35% of $150,000)			52,500
Depreciation			80,000
Other Fixed Costs			10,000	142,500
Operating Income				340,000
Taxation				136,000
Net Income				204,000
Contribution margin = sales-variable cost
		= 650,000-167,500
		=$482,500
Contribution margin per Unit = $482,500/200,000
		=2.413
Contribution margin ratio = Cntribution margin per unit/selling price
		=2.413/3.25
		=0.74
Assumptions:
ABC Cookies sales 200,000 units at a selling price of $3.25 per unit
	Variable direct labor (Sales and administration), ecommerce and electricity constitute 65 percent of total labor cost
	Fixed cost Salaried workers, ecommerce and electricity constitute 35 percent of fixed cost
	Other costs include rent, property taxes, insurance premiums, ecommerce and

Break Even Analysis
Break even point in units = Fixed Cost/ contribution margin per unit
		= $142,500/$(3.25-2.41)
		=169,643 units
Break even point in sales = Fixed Cost/ Contribution margin ratio
		=$142,500/0.74
		= $192,567.57
Targeted Sales Units = Fixed profit + Profit/Contribution margin per unit
		=$142,500+$100/(3.25-2.41)
		=169,762 units
This seems realistic because the organization has reputable brand in the market to increase sales.
Also, the company intends to employ sales representatives on a temporary basis to increase its sales