3. Forever Snow operates a Rocky Mountain ski resort. The company is planning its lift ticket pricing for the coming ski season. (Click the icon to view the information.) Read the requirements? Requirement 1. If Forever Snow cannot reduce its costs, what profit will it earn? State your answer in dollars and as a percent of assets. Will investors be happy with the profit level? Complete the following table to calculate Forever Snow's projected income. Revenue at market price Less: Total costs Operating income (Round the percentage to the nearest hundredth percent, X.XX%.) Forever Snow's projected operating income (profit) as a percent of assets amounts to % Will investors be happy with this profit level? (1) - Requirement 2. Assume Forever Snow has found ways to cut its fixed costs to $36,000,000. What is its new target variable cost per skier/snowboarder? Complete the following table to calculate Forever Snow's new target variable cost per customer. (Round your final answer to the nearest cent.) Revenue at market price Less: Desired profit Target full cost Less: Reduced level of fixed costs Target total variable costs Divided by number of skiers / snowboarders Target variable cost per skier / snowboarder 5. Suppose Italian Grill restaurant is considering whether to (1) bake bread for its restaurant in-house or (2) buy the bread from a local bakery. The chef estimates that variable costs of making each loaf include $0.54 of ingredients, $0.28 of variable overhead (electricity to run the oven), and $0.77 of direct labor for kneading and forming the loaves. Allocating fixed overhead (depreciation on the kitchen equipment and building) based on direct labor, Italian Grill assigns $0.96 of fixed overhead per loaf. None of the fixed costs are avoidable. The local bakery would charge $1.70 per loaf. Read the requirements? Requirements 1. What is the unit cost of making the bread in-house? Complete the following outsourcing decision analysis to determine Italian Grill's unit cost of making the bread. Italian Grill Outsourcing Decision Direct material Direct labor Variable overhead Variable cost per unit Plus: Fixed overhead per unit Cost per unit Requirement 2. Should Italian Grill bake the bread in-house or buy from the local bakery? Why? Decision: (1) - since the (2) - of making each loaf is (3) - the cost of outsourcing each loaf. Requirement 3. In addition to the financial analysis, what else should Italian Grill consider when making this decision? Italian Grill should consider the following qualitative factors before making a final decision: O A. How does the quality and freshness of the local bakery bread compare to Italian Grill bread? O B. Will the local bakery meet their delivery time requirements? O C. Both A and B OD. None of the above 3. Forever Snow operates a Rocky Mountain ski resort. The company is planning its lift ticket pricing for the coming ski season. (Click the icon to view the information.) Read the requirements? Requirement 1. If Forever Snow cannot reduce its costs, what profit will it earn? State your answer in dollars and as a percent of assets. Will investors be happy with the profit level? Complete the following table to calculate Forever Snow's projected income. Revenue at market price Less: Total costs Operating income (Round the percentage to the nearest hundredth percent, X.XX%.) Forever Snow's projected operating income (profit) as a percent of assets amounts to % Will investors be happy with this profit level? (1) - Requirement 2. Assume Forever Snow has found ways to cut its fixed costs to $36,000,000. What is its new target variable cost per skier/snowboarder? Complete the following table to calculate Forever Snow's new target variable cost per customer. (Round your final answer to the nearest cent.) Revenue at market price Less: Desired profit Target full cost Less: Reduced level of fixed costs Target total variable costs Divided by number of skiers / snowboarders Target variable cost per skier / snowboarder 5. Suppose Italian Grill restaurant is considering whether to (1) bake bread for its restaurant in-house or (2) buy the bread from a local bakery. The chef estimates that variable costs of making each loaf include $0.54 of ingredients, $0.28 of variable overhead (electricity to run the oven), and $0.77 of direct labor for kneading and forming the loaves. Allocating fixed overhead (depreciation on the kitchen equipment and building) based on direct labor, Italian Grill assigns $0.96 of fixed overhead per loaf. None of the fixed costs are avoidable. The local bakery would charge $1.70 per loaf. Read the requirements? Requirements 1. What is the unit cost of making the bread in-house? Complete the following outsourcing decision analysis to determine Italian Grill's unit cost of making the bread. Italian Grill Outsourcing Decision Direct material Direct labor Variable overhead Variable cost per unit Plus: Fixed overhead per unit Cost per unit Requirement 2. Should Italian Grill bake the bread in-house or buy from the local bakery? Why? Decision: (1) - since the (2) - of making each loaf is (3) - the cost of outsourcing each loaf. Requirement 3. In addition to the financial analysis, what else should Italian Grill consider when making this decision? Italian Grill should consider the following qualitative factors before making a final decision: O A. How does the quality and freshness of the local bakery bread compare to Italian Grill bread? O B. Will the local bakery meet their delivery time requirements? O C. Both A and B OD. None of the above
