Cost per unit and gross profit (Learning Objective 4)
Jimmy Jones operates Jimmy’s Cricket Farm in Eatonton, Georgia. Jimmy’s raises about 1 8 million crickets a month. Most are sold to pet stores at $12.60 for a box of 1,000 crickets. Pet stores sell the crickets for $0.05 to $0.10 each as live feed for reptiles.
Raising crickets requires a two-step process: incubation and brooding. In the first process, incubation employees place cricket eggs on mounds of peat moss to hatch. In the second process, employees move the newly hatched crickets into large boxes filled with cardboard dividers. Depending on the desired size, the crickets spend approximately two weeks in brooding before being shipped to pet stores. In the brooding process, Jimmy’s crickets consume about 16 tons of food and produce 12 tons of manure.
Jones has invested $400,000 in the cricket farm, and he had hoped to earn a 24% annual rate of return, which works out to a 2% monthly return on his invest¬ ment. After looking at the farm’s bank balance, Jones fears he is not achieving this return. To get more accurate information on the farm’s performance, Jones bought new accounting software that provides weighted-average process cost information. After Jones input data, the software provided the following reports. Flowever, Jones needs help interpreting these reports.
Jones does know that a unit of production is a box of 1,000 crickets. For exam¬ ple, in June’s report, the 7,000 physical units of beginning work in process inventory are 7,000 boxes (each one of the 7,000 boxes contains 1,000 immature crickets). The finished goods inventory is zero because the crickets ship out as soon as they reach the required size. Monthly operating expenses total $2,000 (in addition to the costs that follow).

Requirements Jimmy Jones has the following questions about the farm’s performance during June:
1. What is the cost per box of crickets sold? (Hint: This is the cost of the boxes completed and shipped out of brooding.)
2. What is the gross profit per box?
3. How much operating income did Jimmy’s Cricket Farm make in June?
4. What is the return on Jones’s investment of $400,000 for the month of June? (Compute this as June’s operating income divided by Jones’ $400,000 invest¬ ment, expressed as a percentage.)
5. What monthly operating income would provide a 2% monthly rate of return? What price per box would Jimmy’s Cricket Farm have had to charge in June to achieve a 2% monthly rate of return?

Transcribed Image Text:

JIMMY'S CRICKET FARM Brooding Department Production Cost Report (part 1 of 2) Month Ended June 30 Equivalent Units Flow of Transferred- Direct Conversion Flow of Production Physical Units In Materials Costs Units to account for: Beginning work in process inventory, June 1 7,000 Transferred in during June 21,000 Total units to account for 28,000 Units accounted for: Completed and shipped out during June 19,000 19,000 19,000 19,000 Ending work in process, June 30 9,000 9,000 7,200 3,600 Total physical units accounted for 28,000 Total equivalent units 28,000 26,200 22,600