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: Caramel Total Apple Ples Apples Sales price (per unit) $25.00 $8.50 Expected sales units (for September) 17,000 7,500 9,500 Total $21,900.00 Expected Manufacturing costs: Fixed OH (per month) Direct labor (per unit) Direct materials (per unit) Variable OH (per unit) Expected Marketing and admin costs: Fixed costs (per month) Variable costs (per unit) Apple Pies $17,625.00 $3.75 $3.00 $2.25 Caramel Apples $4,275.00 $2.10 $2.00 $0.90 $6,675.00 $5,250.00 $1.45 $1,425.00 $0.35 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 3.500 pies and 4,500 caramel apples for a discounted price of $20.00 and $7.50, respectively. With the number of staff and the size of the bakery, Nikki determined that the maximum capacity for the bakery is 3,800 labor hours a month. At the current projected sale amounts she expects that they'll need 3,205 hours to meet their regular sales volume. After review of the salaries of all the staff, Nikki determined that the average hourly wage was $15.00. 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 8,000 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 $1,675 $20,000 Conversion $3,500 $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) Problems 1. For Apple Pies only, compute the variable manufacturing costs per unit, full unit cost per unit, variable cost per unit, full absorption cost per unit, prime cost per unit, conversion cost per unit, profit margin per unit, contribution margin per unit, and gross margin per unit. 2. Calculate the total profit expected for September, compute the weighted average contribution margin, and compute the breakeven in units. 3. Calculate the labor hours needed for the special order, calculate the incremental profit/(loss) for the special order, calculate the capacity available for regular orders, compute the contribution margin per hour for regular orders, compute the contribution margin lost from regular sales orders, calculate the total contribution margin including the special order. Apple Hily Farms 2. Total Profit for the month of September And Pics Caramal Annie Total Revenue Variable costs Contribution margin Fixed costs Operating profit b. Compute the weighted average contribution margin per unit Percentage Welights: Ade Ples Total Sales Percentage Caramal Ads TAS Weighted Area Contribution Margin RE Apple Pie! Caramel Apples S Weighted average contribution margin per unit c. Compute breakeven: Fed Costa Cantik Marcin Breakawan #DIVO Breakevens Todellakaan Apple Pie! Caramel Apples a. Labor hours required for special order Labor cost per unit Labor hours needed for estimated production Labor hours per unit Wage rate per hour Product Apple Pies Caramel Apples Total hours required Special order quantity Apple Pies Caramel Apples Capacity used for special order Total b. Incremental profit/(loss) on special order Differential revenues Apple Pies Caramel Apples Special order units Selling price Incremental revenue Differential costs Special order units Total variable costs Differential cost Differential profit/(loss) If labor hours for the additional 8,000 units combined, then regular production will need to be reduced for the product with the lowest contribution margin If labor hours for the additional 8,000 units combined, then regular production will need to be reduced for the product with the lowest contribution margin Bakery capacity (in direct-labor hours) Capacity used for special order Capacity available for regular orders Capacity needed for apple pies Capacity needed for caramel apples Hours over capacity for regular orders c. Compute contribution margin per hour for regular orders Apple Pies Caramel Apples Revenue per unit Variable cost per unit Contribution margin per unit Direct-labor hours per unit Contribution margin per hour d. Compute contribution margin lost from regular sales Lowest contribution margin per hour Hours over capacity for regular orders Total lost contribution margin Total lost production in units e. Total contribution margin with special order Apple Pies Caramel Apples Total Special Order CM per unit Number of units Special order CM Apple Ples Caramel Apples Revenue per unit Variable cost per unit Contribution margin per unit Direct-labor hours per unit Contribution margin per hour d. Compute contribution margin lost from regular sales Lowest contribution margin per hour Hours over capacity for regular orders Total lost contribution margin Total lost production in units e. Total contribution margin with special order Apple Pies_Caramel Apples Total Special Order CM per unit Number of units Special order CM Regular Production CM per unit Number of units Regular production CM Total contribution margin Regular production contribution margin Difference in profit with special order 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: Caramel Total Apple Ples Apples Sales price (per unit) $25.00 $8.50 Expected sales units (for September) 17,000 7,500 9,500 Total $21,900.00 Expected Manufacturing costs: Fixed OH (per month) Direct labor (per unit) Direct materials (per unit) Variable OH (per unit) Expected Marketing and admin costs: Fixed costs (per month) Variable costs (per unit) Apple Pies $17,625.00 $3.75 $3.00 $2.25 Caramel Apples $4,275.00 $2.10 $2.00 $0.90 $6,675.00 $5,250.00 $1.45 $1,425.00 $0.35 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 3.500 pies and 4,500 caramel apples for a discounted price of $20.00 and $7.50, respectively. With the number of staff and the size of the bakery, Nikki determined that the maximum capacity for the bakery is 3,800 labor hours a month. At the current projected sale amounts she expects that they'll need 3,205 hours to meet their regular sales volume. After review of the salaries of all the staff, Nikki determined that the average hourly wage was $15.00. 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 8,000 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 $1,675 $20,000 Conversion $3,500 $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) Problems 1. For Apple Pies only, compute the variable manufacturing costs per unit, full unit cost per unit, variable cost per unit, full absorption cost per unit, prime cost per unit, conversion cost per unit, profit margin per unit, contribution margin per unit, and gross margin per unit. 2. Calculate the total profit expected for September, compute the weighted average contribution margin, and compute the breakeven in units. 3. Calculate the labor hours needed for the special order, calculate the incremental profit/(loss) for the special order, calculate the capacity available for regular orders, compute the contribution margin per hour for regular orders, compute the contribution margin lost from regular sales orders, calculate the total contribution margin including the special order. Apple Hily Farms 2. Total Profit for the month of September And Pics Caramal Annie Total Revenue Variable costs Contribution margin Fixed costs Operating profit b. Compute the weighted average contribution margin per unit Percentage Welights: Ade Ples Total Sales Percentage Caramal Ads TAS Weighted Area Contribution Margin RE Apple Pie! Caramel Apples S Weighted average contribution margin per unit c. Compute breakeven: Fed Costa Cantik Marcin Breakawan #DIVO Breakevens Todellakaan Apple Pie! Caramel Apples a. Labor hours required for special order Labor cost per unit Labor hours needed for estimated production Labor hours per unit Wage rate per hour Product Apple Pies Caramel Apples Total hours required Special order quantity Apple Pies Caramel Apples Capacity used for special order Total b. Incremental profit/(loss) on special order Differential revenues Apple Pies Caramel Apples Special order units Selling price Incremental revenue Differential costs Special order units Total variable costs Differential cost Differential profit/(loss) If labor hours for the additional 8,000 units combined, then regular production will need to be reduced for the product with the lowest contribution margin If labor hours for the additional 8,000 units combined, then regular production will need to be reduced for the product with the lowest contribution margin Bakery capacity (in direct-labor hours) Capacity used for special order Capacity available for regular orders Capacity needed for apple pies Capacity needed for caramel apples Hours over capacity for regular orders c. Compute contribution margin per hour for regular orders Apple Pies Caramel Apples Revenue per unit Variable cost per unit Contribution margin per unit Direct-labor hours per unit Contribution margin per hour d. Compute contribution margin lost from regular sales Lowest contribution margin per hour Hours over capacity for regular orders Total lost contribution margin Total lost production in units e. Total contribution margin with special order Apple Pies Caramel Apples Total Special Order CM per unit Number of units Special order CM Apple Ples Caramel Apples Revenue per unit Variable cost per unit Contribution margin per unit Direct-labor hours per unit Contribution margin per hour d. Compute contribution margin lost from regular sales Lowest contribution margin per hour Hours over capacity for regular orders Total lost contribution margin Total lost production in units e. Total contribution margin with special order Apple Pies_Caramel Apples Total Special Order CM per unit Number of units Special order CM Regular Production CM per unit Number of units Regular production CM Total contribution margin Regular production contribution margin Difference in profit with special order