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Although business was off to a good start in January, Jamie realized that she will need to be profitable in order to continue as a

Although business was off to a good start in January, Jamie realized that she will need to be profitable in order to continue as a viable business. Jamie discussed the subject of profitability with her accountant who suggested that she first needs to determine her breakeven point in both unit sales and dollars. He explained to her that break-even is the point where all costs are covered by sales and so, profit is equal to zero. He also suggested that the company should establish monthly target profitability levels in order to determine the amount of cakes it would need to sell to achieve the desired result. Since Jamie did not know how to perform this calculation and in order to save money, she asked you to calculate the companys breakeven point and the target sales need to achieve a monthly profit of $500.

J&J Bakery Inc. opened for business on January 1, 2015 as planned. During the month of January, the business purchased and used 200 pounds of flour, 200 pounds of sugar, 67 dozen eggs, 20 baking soda boxes, 200 pounds of butter, 100 pounds of raisins, 50 bottles of rum, and the other ingredients (one box of each for a total of four) all from one supplier on account. Manufacturing overhead is applied during production of the cakes at a rate of $4.00 per cake.

Jamie purchased the oven using the start-up capital and paid all salaries. Her nieces worked 300 hours in total for the month. January was a very good month for the bakery since it baked 200 cakes and sold all for cash. The average selling price was $50 per cake. All manufacturing overhead is closed out at month end by making the appropriate journal entry to the Cost of Goods Sold Account. The supplier was paid at month end.

Item and Ingredients

Cost

Standard per Cake

Conventional oven

$6,000 (depreciated over 5 years on a SL basis; no salvage value)

n/a

Refrigerator

$0 (provided by landlord)

Baking pans, licenses

$0 (paid for by dad)

n/a

Baking flour

$24 per 8 pounds bag

1 pound

Eggs

$2 per dozen

4 eggs

Sugar

$15 per 25 pounds bag

1 pound

Baking soda

$6 per 14 pounds box

Butter

$6.50 per 4 pounds

1 pound

Raisins

$8 per 2 pounds

pound

Others (currants, diced date, nutmeg, molasses)

$30 for all 4 boxes per month

Cash Register

$12 per month (rental for 2 years

Rum (alcohol)

$12 per bottle

qtr of bottle

Utilities (includes gas, electric, and water)

$50 per month

Mobile phone (business)

$50 per month

Salary Jamie

$500 per month

Salary nieces

$8 per hour

1 person 1.5 hours per cake

Salary aunt

$100 per month

Accountant

$100 per month

Estimated MOH

$4.00 per cake

Calculate J&J Bakery Incs breakeven point in both units and sales dollars. Also, calculate the sales needed in order to achieve a monthly profit of $500. Use four decimal places in converting from total to per unit cost.

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