Purpose: Apply real world analysis to a problem faced by a local company using the skills learned in the class. Apple Hilly Farms Ned Hilly was an investment banker and worked in San Francisco at a large bank. As retirement got closer his wife, Sally, and him decided to spend their retirement up in the Sierra Nevada foothills by buying an apple farm in Apple Hill. All their kids were grown and their youngest daughter, Nikki, was finishing an accounting degree at Sac State, whom they were hoping would help them out with the books once she was done. A few years go by and the farm life is bustling. They had a U-Pick your own apples at the farm which cut down costs of running the farm, though they ended up with more apples than they could sell that first year. The second year, Sally came up with the idea of opening a bakery on the farm. She was an excellent baker; she makes the best apple pie west of the Mississippi, at least her family thought so. The bakery was a success that year, more so than expected. Sally made homemade apple pies and caramel apples with her special caramel sauce. In the following year, they expanded bakery operations to include more staff and an extra space for baking. Ned wasn't too sure if the expansion was going to be profitable, he had an idea of the costs involved with apple pie and caramel apple production, but he couldn't pinpoint the details. Since Apple Hill is a seasonal business he wanted to know how well his business did in the peak season to ensure that it made enough to cover the costs in the off-season. Luckily, Nikki just graduated in May and she would be able to work with Ned to work out the details and come up with some possible advice and solutions to his questions. Nikki started by talking with her parents about some of the estimated sales and costs that they thought would incur for the month of September. Here are some of those estimates: Apple Pies Caramel Apples Total Sales price (per unit) Expected sales (for September) $22.00 $8.00 15,000 6,000 9,000 Caramel Expected Manufacturing costs: Total Apple Pies Apples Fixed OH (per month) $20,150.00 $16,500.00 $3,650.00 $3.50 $2.50 $2.10 Direct labor (per unit) Direct materials (per unit) $1.75 Variable OH (per unit) $2.00 $0.75 Expected Marketing and admin costs: Fixed costs (per month) Variable costs (per unit) $1,250.00 $0.25 $5,750.00 $4,500.00 $1.25 Additionally, Sally informed her that the farm received a special order to sell their apple pies and caramel apples at the local county fair in September. Sally wanted to sell 3,250 pies and 4,250 caramel apples for a discounted price of $18.00 and $6.50, respectively. With, the amount of staff and the size of the bakery, Nikki determined that the maximum capacity for the bakery is 3,70o labor hours a month. At the current projected sale amounts she expects that they'll need 2,850 hours to meet their regular sales volume. After review of the salaries of all the staff, Nikki determined that the average hourly wage was $14.00. Ned was also concerned about how much it cost to keep apple pie inventory on hand at the end of the month, caramel apples should be sold within a couple days so no inventory is left at the end of the month. Since there is a limited shelf life for the apple pies, Ned and Sally try and keep the ending inventories in line with next month's expectations. They estimated that they'd have to start 7,000 apple pies in order to have 1,000 apple pies in-process at the end of the month and 500 finished pies. At the end of August there were 500 pies that were in-process and no finished pies. The variable costs associated with these inventories were as follows: Beginning WIP inventory September costs DM $1,400 $17,500 Conversion $3,350 $38,500 And the conversion cost for the in-process pies is 50% completed and 100% for direct materials. (Use the expected for September Apple Pie Sales for determining units started and units completed and transferred out) September was a success for the bakery! They were able to complete the special order and with some overtime baked a few more pies. Here were the results for the actual sales and costs at the end of the month. (The actuals as presented below are only to be use for Problem 6.) Apple Pies $22.50 $7,250 Caramel Apples $7.00 $10,500 Total Actual Sales price (per unit) Actual sales $17,750 $81,625 Actual variable manufacturing OH Actual variable marketing and admin cost Actual fixed manufacturing costs $15,125 $18,000 $5,000 Actual marketing and admin costs Apple Hilly Farms a. Total Profit for the month of September Apple Pies Caramel Apple Total Revenue Variable costs Contribution margin Fixed costs Operating profit 11 12 13 14 b. Compute the weighted average contribution margin per unit 15 Percentage Weight Weights: Apple Pies Total Sales 16 17 18 Percentage Weight Caramel Apples Tou Sales 19 20 21 Contribution Margin per unit Weighted Average CM 22 Weight Apple Pie Caramel Apples 23 24 25 26 Weighted-average contribution margin per unit 27 28 29 c. Compute breakeven: 30 Fixed Costs Contrib. Margin Breakeven 31 32 33 Breakeven per Unit 34 Total Breakeven Weight Apple Pie Caramel Applos 35 36 37 36 39 40 2. What does the mix of the weighted-average contribution margin tell us about the impact to profits of each product? Purpose: Apply real world analysis to a problem faced by a local company using the skills learned in the class. Apple Hilly Farms Ned Hilly was an investment banker and worked in San Francisco at a large bank. As retirement got closer his wife, Sally, and him decided to spend their retirement up in the Sierra Nevada foothills by buying an apple farm in Apple Hill. All their kids were grown and their youngest daughter, Nikki, was finishing an accounting degree at Sac State, whom they were hoping would help them out with the books once she was done. A few years go by and the farm life is bustling. They had a U-Pick your own apples at the farm which cut down costs of running the farm, though they ended up with more apples than they could sell that first year. The second year, Sally came up with the idea of opening a bakery on the farm. She was an excellent baker; she makes the best apple pie west of the Mississippi, at least her family thought so. The bakery was a success that year, more so than expected. Sally made homemade apple pies and caramel apples with her special caramel sauce. In the following year, they expanded bakery operations to include more staff and an extra space for baking. Ned wasn't too sure if the expansion was going to be profitable, he had an idea of the costs involved with apple pie and caramel apple production, but he couldn't pinpoint the details. Since Apple Hill is a seasonal business he wanted to know how well his business did in the peak season to ensure that it made enough to cover the costs in the off-season. Luckily, Nikki just graduated in May and she would be able to work with Ned to work out the details and come up with some possible advice and solutions to his questions. Nikki started by talking with her parents about some of the estimated sales and costs that they thought would incur for the month of September. Here are some of those estimates: Apple Pies Caramel Apples Total Sales price (per unit) Expected sales (for September) $22.00 $8.00 15,000 6,000 9,000 Caramel Expected Manufacturing costs: Total Apple Pies Apples Fixed OH (per month) $20,150.00 $16,500.00 $3,650.00 $3.50 $2.50 $2.10 Direct labor (per unit) Direct materials (per unit) $1.75 Variable OH (per unit) $2.00 $0.75 Expected Marketing and admin costs: Fixed costs (per month) Variable costs (per unit) $1,250.00 $0.25 $5,750.00 $4,500.00 $1.25 Additionally, Sally informed her that the farm received a special order to sell their apple pies and caramel apples at the local county fair in September. Sally wanted to sell 3,250 pies and 4,250 caramel apples for a discounted price of $18.00 and $6.50, respectively. With, the amount of staff and the size of the bakery, Nikki determined that the maximum capacity for the bakery is 3,70o labor hours a month. At the current projected sale amounts she expects that they'll need 2,850 hours to meet their regular sales volume. After review of the salaries of all the staff, Nikki determined that the average hourly wage was $14.00. Ned was also concerned about how much it cost to keep apple pie inventory on hand at the end of the month, caramel apples should be sold within a couple days so no inventory is left at the end of the month. Since there is a limited shelf life for the apple pies, Ned and Sally try and keep the ending inventories in line with next month's expectations. They estimated that they'd have to start 7,000 apple pies in order to have 1,000 apple pies in-process at the end of the month and 500 finished pies. At the end of August there were 500 pies that were in-process and no finished pies. The variable costs associated with these inventories were as follows: Beginning WIP inventory September costs DM $1,400 $17,500 Conversion $3,350 $38,500 And the conversion cost for the in-process pies is 50% completed and 100% for direct materials. (Use the expected for September Apple Pie Sales for determining units started and units completed and transferred out) September was a success for the bakery! They were able to complete the special order and with some overtime baked a few more pies. Here were the results for the actual sales and costs at the end of the month. (The actuals as presented below are only to be use for Problem 6.) Apple Pies $22.50 $7,250 Caramel Apples $7.00 $10,500 Total Actual Sales price (per unit) Actual sales $17,750 $81,625 Actual variable manufacturing OH Actual variable marketing and admin cost Actual fixed manufacturing costs $15,125 $18,000 $5,000 Actual marketing and admin costs Apple Hilly Farms a. Total Profit for the month of September Apple Pies Caramel Apple Total Revenue Variable costs Contribution margin Fixed costs Operating profit 11 12 13 14 b. Compute the weighted average contribution margin per unit 15 Percentage Weight Weights: Apple Pies Total Sales 16 17 18 Percentage Weight Caramel Apples Tou Sales 19 20 21 Contribution Margin per unit Weighted Average CM 22 Weight Apple Pie Caramel Apples 23 24 25 26 Weighted-average contribution margin per unit 27 28 29 c. Compute breakeven: 30 Fixed Costs Contrib. Margin Breakeven 31 32 33 Breakeven per Unit 34 Total Breakeven Weight Apple Pie Caramel Applos 35 36 37 36 39 40 2. What does the mix of the weighted-average contribution margin tell us about the impact to profits of each product? Purpose: Apply real world analysis to a problem faced by a local company using the skills learned in the class. Apple Hilly Farms Ned Hilly was an investment banker and worked in San Francisco at a large bank. As retirement got closer his wife, Sally, and him decided to spend their retirement up in the Sierra Nevada foothills by buying an apple farm in Apple Hill. All their kids were grown and their youngest daughter, Nikki, was finishing an accounting degree at Sac State, whom they were hoping would help them out with the books once she was done. A few years go by and the farm life is bustling. They had a U-Pick your own apples at the farm which cut down costs of running the farm, though they ended up with more apples than they could sell that first year. The second year, Sally came up with the idea of opening a bakery on the farm. She was an excellent baker; she makes the best apple pie west of the Mississippi, at least her family thought so. The bakery was a success that year, more so than expected. Sally made homemade apple pies and caramel apples with her special caramel sauce. In the following year, they expanded bakery operations to include more staff and an extra space for baking. Ned wasn't too sure if the expansion was going to be profitable, he had an idea of the costs involved with apple pie and caramel apple production, but he couldn't pinpoint the details. Since Apple Hill is a seasonal business he wanted to know how well his business did in the peak season to ensure that it made enough to cover the costs in the off-season. Luckily, Nikki just graduated in May and she would be able to work with Ned to work out the details and come up with some possible advice and solutions to his questions. Nikki started by talking with her parents about some of the estimated sales and costs that they thought would incur for the month of September. Here are some of those estimates: Apple Pies Caramel Apples Total Sales price (per unit) Expected sales (for September) $22.00 $8.00 15,000 6,000 9,000 Caramel Expected Manufacturing costs: Total Apple Pies Apples Fixed OH (per month) $20,150.00 $16,500.00 $3,650.00 $3.50 $2.50 $2.10 Direct labor (per unit) Direct materials (per unit) $1.75 Variable OH (per unit) $2.00 $0.75 Expected Marketing and admin costs: Fixed costs (per month) Variable costs (per unit) $1,250.00 $0.25 $5,750.00 $4,500.00 $1.25 Additionally, Sally informed her that the farm received a special order to sell their apple pies and caramel apples at the local county fair in September. Sally wanted to sell 3,250 pies and 4,250 caramel apples for a discounted price of $18.00 and $6.50, respectively. With, the amount of staff and the size of the bakery, Nikki determined that the maximum capacity for the bakery is 3,70o labor hours a month. At the current projected sale amounts she expects that they'll need 2,850 hours to meet their regular sales volume. After review of the salaries of all the staff, Nikki determined that the average hourly wage was $14.00. Ned was also concerned about how much it cost to keep apple pie inventory on hand at the end of the month, caramel apples should be sold within a couple days so no inventory is left at the end of the month. Since there is a limited shelf life for the apple pies, Ned and Sally try and keep the ending inventories in line with next month's expectations. They estimated that they'd have to start 7,000 apple pies in order to have 1,000 apple pies in-process at the end of the month and 500 finished pies. At the end of August there were 500 pies that were in-process and no finished pies. The variable costs associated with these inventories were as follows: Beginning WIP inventory September costs DM $1,400 $17,500 Conversion $3,350 $38,500 And the conversion cost for the in-process pies is 50% completed and 100% for direct materials. (Use the expected for September Apple Pie Sales for determining units started and units completed and transferred out) September was a success for the bakery! They were able to complete the special order and with some overtime baked a few more pies. Here were the results for the actual sales and costs at the end of the month. (The actuals as presented below are only to be use for Problem 6.) Apple Pies $22.50 $7,250 Caramel Apples $7.00 $10,500 Total Actual Sales price (per unit) Actual sales $17,750 $81,625 Actual variable manufacturing OH Actual variable marketing and admin cost Actual fixed manufacturing costs $15,125 $18,000 $5,000 Actual marketing and admin costs Apple Hilly Farms a. Total Profit for the month of September Apple Pies Caramel Apple Total Revenue Variable costs Contribution margin Fixed costs Operating profit 11 12 13 14 b. Compute the weighted average contribution margin per unit 15 Percentage Weight Weights: Apple Pies Total Sales 16 17 18 Percentage Weight Caramel Apples Tou Sales 19 20 21 Contribution Margin per unit Weighted Average CM 22 Weight Apple Pie Caramel Apples 23 24 25 26 Weighted-average contribution margin per unit 27 28 29 c. Compute breakeven: 30 Fixed Costs Contrib. Margin Breakeven 31 32 33 Breakeven per Unit 34 Total Breakeven Weight Apple Pie Caramel Applos 35 36 37 36 39 40 2. What does the mix of the weighted-average contribution margin tell us about the impact to profits of each product?