| | Production | 25,000 Jars of soup | Cost Per jar of soup (c.) (cost / 25,000 jars) | Budget for the coming month (a.) (30,000 jars) | Cost per unit for the coming month (c.) |
| | Ingredient cost (variable) | $ 20,000 |
| | Labor cost (variable) | 12,000 |
| | Depreciation (fixed) | 6,000 |
| | Other (fixed) | 1,000 |
| | Total | $ 44,000 |
| REQUIRED |
| Using the above information: |
| a. Prepare a budget for the coming month. Assume that production will increase to 30,000 jars of soup. Variable costs = (cost per jar X 30,000) Fixed costs do not change with a volume change. |
| b. Does the budget suggest that additional workers are needed? How do you know? Suppose the wage rate is $20 per hour. How many additional labor hours are needed for the coming month (show your work)? |
| What would happen if management did not anticipate the need for additional labor in the coming month? |
| c. Calculate the actual cost per unit in in the previous month and the budgeted cost per unit for the coming month. Explain why the cost per unit is expected to decrease (hint: look at the fixed costs). |
| The company is currently producing and selling 325,000 jars of soup annually. The jars sell for $5.00 each. The company is considering lowering the price to $4.60. Suppose this action will increase sales to 375,000 jars. |
| a. What is the incremental cost associated with producing an extra 50,000 jars of soup? |
| b. What is the incremental revenue associated with the price reduction of $0.40 per jar? |
| c. Should Suzy's lower the price of its soup? |
| | | 325,000 | 375,000 | Incremental Costs and revenues |
| | Revenues |
| | Ingredient cost (variable) |
| | Labor cost (variable) |
| | Depreciation (fixed) |
| | Other (fixed) |
| | Total costs |
| | Profit |
MKE2018
Module1Excel.xlsx
