Question
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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