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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
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 budgets spreadsheet to explore the impact various sales goals on production. In 2014, the company had quarterly sales as follows: Sales (gallons) Quarter 19200 Quarter 1 17000 Quarter 2 Quarter 3 19000 19800 Quarter 4 At a planning meeting in November 2014, Jay Peters, the marketing manager for Abruzzi, told Cheryl that he expected quarterly sales to increase by 5 to 15 percent in the coming year. But in late December 2014, 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 fo 1,250 gallons each quarter for all of 2015 and willing to pay $24 per gallon. Gosh," Cheryl replied, "that's a exciting bit of news, but Im concerned about whether we have the capacity to accept such a large order. I'll prepare budgets assuming we don't get the Consolidated business but we increase quarterly sales by 5, 10 or 15 percent. Then I'll assume the Consolidated order comes through, and on top of that we have quarterly sales increase of 5 10, and 15 percent. This should give us a good idea of whether we'll bump up against capacity. Jay thought that this sounded fine, but he wondered whether 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 a. Using a spreadsheet, prepare the six quarterly budget schedules that Cheryl suggested (i quarterly budgets with and without the Consolidated business assuming other sales increases 0, and 15 percent). As a general rule Cheryl likes to have ending inventory equal to percent of next quarter's sales. Assume that the company ended 2014 with an inventory of 1,500 gallons of olive oil. In order to calculate ending inventory at the end of fourth quarter of 2015 assume that sales in first quarter of 2016 will be the same as sales of the fourth quarter of 2015. b. Suppose that capacity is 24,000 gallons. Is the company likely to encounter a capacity problem? Please explain
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