8-1 ABRUZZI OLIVE OIL COMPANY Abruzzi Olive Oil Company is a small producer of premium olive oil. Cheryl Sounders, the owner of Abruzzi is currently developing a budget spreedsheet to explore the impact of various sales goals on production. In 2002 , the company had monthly sales as follows: At a plnning meeting in November 2002, Jay Peters, the marketing manager for Abruzzi told Cheryl that he expected monthly sales to increase by 5 to 15 percent in the coming year. But, in late December, 2002, Jay rushed into Cheryl's office with some good news. "Cheryl, I just had a meeting with Consolidated Restaurants, and they're considering an order for 1,000 gallons each month for all of 2003 ." "Gosh," Cheryl replied, "that's an exciting bit of news, but I'm concerned about whether we have the capacity to accept such a large order. Fll prepare budgets assuming we don't get the Consolidated business but we increase monthly sales by 5,10 or 15 percent. Then, I'll assume the Consolidated order comes through and on top of that we have monthly sales increases of 5,10 and 15 percent. This should give us a good idea of whether or not we'll bump up against capacity." Jay thought that this sounded fine, but he wondered if Cheryl had the time to do this much work. Cheryl indicated that the analysis was relatively easy since she was preparing the budget on a spreadsheet and each analysis would require only a simple change. Required 1. Using a spreadsheet, prepare the six monthly budget schedules that Cheryl suggested (i.e., monthly budgets with and without the Consolidated business assuming other sales increases of 5,10 , and 15 percent). As a general rule, Cheryl likes to have beginning inventory equal to: 15 percent of next month's sales. Assume the company ended 2002 with an inventory of 1,500 gallons of olive oil. In order to calculate ending inventory at the end of Deceinber 2003, assume that sales in' January of 2004 will be the same as December 2003 sales. 2. Suppose that capacity is 11,000 gallons. Is the company likely to encounter a capacity problem? 3. Abruzzi sells its oil for $20 per gallon. The variable cost per gallon is $8. What will be the annual impact on profit of obtaining the Consolidated business (assuming there is not a capacity problem)? 8-1 ABRUZZI OLIVE OIL COMPANY Abruzzi Olive Oil Company is a small producer of premium olive oil. Cheryl Sounders, the owner of Abruzzi is currently developing a budget spreedsheet to explore the impact of various sales goals on production. In 2002 , the company had monthly sales as follows: At a plnning meeting in November 2002, Jay Peters, the marketing manager for Abruzzi told Cheryl that he expected monthly sales to increase by 5 to 15 percent in the coming year. But, in late December, 2002, Jay rushed into Cheryl's office with some good news. "Cheryl, I just had a meeting with Consolidated Restaurants, and they're considering an order for 1,000 gallons each month for all of 2003 ." "Gosh," Cheryl replied, "that's an exciting bit of news, but I'm concerned about whether we have the capacity to accept such a large order. Fll prepare budgets assuming we don't get the Consolidated business but we increase monthly sales by 5,10 or 15 percent. Then, I'll assume the Consolidated order comes through and on top of that we have monthly sales increases of 5,10 and 15 percent. This should give us a good idea of whether or not we'll bump up against capacity." Jay thought that this sounded fine, but he wondered if Cheryl had the time to do this much work. Cheryl indicated that the analysis was relatively easy since she was preparing the budget on a spreadsheet and each analysis would require only a simple change. Required 1. Using a spreadsheet, prepare the six monthly budget schedules that Cheryl suggested (i.e., monthly budgets with and without the Consolidated business assuming other sales increases of 5,10 , and 15 percent). As a general rule, Cheryl likes to have beginning inventory equal to: 15 percent of next month's sales. Assume the company ended 2002 with an inventory of 1,500 gallons of olive oil. In order to calculate ending inventory at the end of Deceinber 2003, assume that sales in' January of 2004 will be the same as December 2003 sales. 2. Suppose that capacity is 11,000 gallons. Is the company likely to encounter a capacity problem? 3. Abruzzi sells its oil for $20 per gallon. The variable cost per gallon is $8. What will be the annual impact on profit of obtaining the Consolidated business (assuming there is not a capacity problem)
