Billy Davidson operates Billy’s Worm Farm in Mississippi. Davidson raises worms for fishing. He sells a box of 20 worms for $12.60. Davidson has invested $400,000 in the worm farm. He had hoped to earn a 24% annual rate of return (net income divided by total assets), which works out to a 2% monthly return on his investment. After looking at the farm’s bank balance, Davidson fears he is not achieving this return. To evaluate the farm’s performance, he prepared the following production cost report. The Finished Goods Inventory is zero because the worms ship out as soon as they reach the required size. Monthly operating expenses total $2,000 (in addition to the costs below). 

Requirements

Billy Davidson has the following questions about the farm’s performance during June. 

1. What is the cost per box of worms sold? 

2. What is the gross profit per box? 

3. How much operating income did Billy’s Worm Farm make in June?

4. What is the return on Davidson’s investment of $400,000 for the month of June? (Compute this as June’s operating income divided by Davidson’s $400,000 investment, expressed as a percentage.) 

5. What monthly operating income would provide a 2% monthly rate of return? What sales price per box would Billy’s Worm Farm have had to charge in June to achieve a 2% monthly rate of return?

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UNITS Units to account for: Beginning work-in-process Transferred in Total units to account for BILLY'S WORM FARM Production Cost Report-BROODING DEPARTMENT Month Ended June 30, 2018 Equivalent Units Direct Materials Units accounted for: Completed and transferred out Ending work-in-process Total units accounted for COSTS Costs to account for: Beginning work-in-process Costs added during period Total costs to account for Divided by: Total EUP Cost per equivalent unit Costs accounted for: Completed and transferred out Ending work-in-process Total costs accounted for Physical Units 9,000 21,000 30,000 20,000 10,000 30,000 Transferred In 20,000 10,000 30,000 Transferred In $ 21,000 46,200 67,200 + 30,000 $ 2.24 $ 44,800 22,400 $ 67,200 20,000 6,000 26,000 Direct Materials $ 39,940 152,460 192,400 + 26,000 $ 7.40 $ 148,000 44,400 $ 192,400 Conversion Costs 20,000 3,600 23,600 Conversion Costs $ 5,020 56,340 61,360 + 23,600 $ 2.60 $ 52,000 9,360 $ 61,360 Total Costs $ 65,960 255,000 $ 320,960 $ 244,800 76,160 $ 320,960