aits product at $4.50. for Adelle, however, som ier, so now you CHAPTER THREE It seems like you have had an impact. The company is now selling its prod ting in a rapid rise in sales. You want to have some specifics for Ada going to do some analysis and then write a memo. up with the cost was. Do not forget REQUIRED: a. Analyze the data Joey originally gave you for March, coming up with + formula and breakeven sales in units and dollars. b. Using the data from April and May, recalculate your cost formulas. Do not to add $1,000 to the fixed costs each month to cover your salary! C. What is Adelle's breakeven point now? d. You decide your job is done, so you give Adelle your notice. This makes her a bi worried, but you console her with the fact that her fixed costs will drop back to the previous $11,400. Recalculate Adelle's breakeven point without your salary. e. What is Adelle's margin of safety in units and revenue dollars in April and May? f. Draft a memo to Adelle with the results of your analysis, including percentage change figures where logical. Use a business case structure that details each of the alternatives and results you attained. CASE 3.1 BEHAVIOR tures even heating the ucts carried by most his EHAVIOR OF COST AND BREAKEVEN ANALYSIS. Adelle manufacturing company, Easy Bake, which mal eating that helps prevent pie shells from getting burnt in patches. It is one d by most high-end kitchen stores throughout the throughout the United States. Even though she sens 1, the product is not selling fast enough to generate a steady She has decided to hire you for $1.000 a month for three months to do a complet LYSIS. Adelle Watson owns a auct, a ceramic pie plate that fea- erything she makes in a month, then for Adelle. She has de ysis of her business. ugn to generate a steady profit three months to do a complete anal- The first person you talk to is Joey Blake, the blake, the company accountant. He provides you with the following information for March: Sales: 5,000 units Total cost of production: $23,900 Average cost of production: $4.78 Average price: $5.00 When you ask Joey for more information re Information on the costs of the company, you find out that all he has been doing is taking the total costs and dividing it by units made to get his cost numbers. You know there is a better way to do this, so you ask Joey to let you look at the books. He does so, providing you with the following information: me sold 5,000 4.000 3,000 Materials $6,250.00 $5,000.00 $3,750.00 Easy Bake's Costs for Varying Volumes Direct Labor Supplies Indirect Labor Electricity Depreciation $2,500.00 $750.00 $3,000.00 $1,500.00 $2,900.00 $2,000.00 $600.00 $2,900.00 $1,300.00 $2,900.00 $1,500.00 $450.00 $2,800.00 $1,100.00 $2,900.00 Other Overhead Rent $3,500.00 $3,500.00 $3,200.00 $3,500.00 $2,900.00 $3,500.00 After completing some basic analysis, you suggest to Adelle that she drop her price by 10% to crease demand. You also make some suggestions about variable costs and fixed costs. Adelle is rvous, but she goes along with your suggestions. It takes a month to make all of the changes you commend. Before your salary is added, Joey gives you the following results for April and May: Indirect Labor Volume Sold 5,500 6,000 Materials $5,500 $6,000 ril Direct Labor $2,200 $2,400 Supplies $550 $600 Other Overhead $3,100 $3,200 Electricity $1,600 $1,700 $3,050 $3,100 Depreciation $2,900 $2,900 Rent TOTALS $3,500 $22,400 $3,500 $23,400 y