At the end of the first month of opening your business, you calculate the actual operating costs of the business and the income you earned. You also notice and document the difference in what you budgeted for certain materials and labor against the actual amounts you spent on the same.

For your statement of cost of goods sold, use the following data regarding the actual costs incurred by the business over the past month:

• Materials purchased: $20,000
  • Consumed 80% of the purchased materials
• Direct labor: $8,493
• Overhead costs: $3,765

Note: Assume that the beginning materials and ending work in process are zero for the month.

Use the following revenue and cost information for the income statement. Note that the revenue you use will depend on the pricing level options you chose in Milestone Two. Also, assume that after accounting for weekends and other holidays, there were 20 business days in the first month of operation. For example, if you chose a sales price of $20 per collar, the actual number of collars sold in the month was 33 per day or 33 x 20 = 660 per month.

The other costs incurred by the business include:

• General and administrative salaries
  • Receptionist: $1,950
• Office supplies: $200
• Other business equipment: $150

Variance

At the end of the month, you find that the labor and materials spent on manufacturing collars were different from what you estimated:

• The collar maker had to work nine hours a day instead of eight due to an increased demand for collars.
• Because of the increased demand, the hourly rate you paid your employee for making the collars increased to $16.50.
• An increase in the cost of raw materials led the direct material cost per dollar to increase to $10.
• However, you also made and sold 60 more collars than you expected to sell in the month.

You now need to determine the variance in the materials and labor cost from what you estimated in Milestone Two based on the market research data.

  
 
 

Milestone Two - Break-Even Analysis COLLARS LEASHES HARNESSES Sales Price $ 20.00 $ 22.00 $ 35.00 Fixed Costs $ 4,028 $ 4,028 4,202 Contribution Margin 10.90 9.90 $ 20.40 Break-Even Units (round up) 370 407 206 Target Profit 300.00 400.00 $ 500.00 Break-Even Units (round up) 397 447 230 Target Profit 500.00 $ 600.00 650.00 Break-Even Units (round up) 415 467 238 %24 %24 %24 %24 %24