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

oConsumed 80% of the purchased materials

Direct labor: $8,493.33

Overhead costs: $3,765

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.

Established Sales Price Number of Items Sold per Day

Collars

$20 33

$24 28

$28 23

Leashes

$22 28

$26 23

$30 18

Harnesses

$25 25

$30 22

$35 20

The other costs incurred by the business include:

General and administrative salaries

oReceptionist: $1,950

oOwner salary: $500

Depreciation: $165

Rent: $750

Utilities and insurance: $600

Scissors, thread, and cording: $1,200

Loan repayment: $550

At the end of the month, you find that the labor and materials spent on manufacturing collars was 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 material led the direct material cost per collar 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.

Salary and Hiring Data

One collar maker, who will be paid $16.00 per hour and work 40 hours per week

One leash maker, who will be paid $16.00 per hour and work 40 hours per week

One harness maker, who will be paid $17.00 per hour and work 40 hours per week

One receptionist, who will be paid $15.00 per hour and work 30 hours per week

Other Costs

Rent: $750 per month; allocate based on square footage

High-tensile strength nylon webbing$12 per yard of webbing

o3 collars per yard of webbing

o2 leashes per yard of webbing

o2 harnesses per yard of webbing

Polyester/nylon ribbons$9 per yard of ribbon

o3 collars per yard of webbing

o2 leashes per yard of webbing

o2 harnesses per yard of webbing

Buckles made of cast hardware$0.50 per buckle

o4 buckles used per collar

o3 buckles used per leash

o8 buckles used per harness

3 industrial sewing machines at $3,300 each for a total of $9,900; depreciation is $165 per month (5-year life)

Utilities and insurance: $600 per month; allocate based on square footage

Scissors, thread, cording: $1,200

Price tags: $250 for 2,500 ($0.10 each)

Office supplies: $2,400 or $200 per month

Other business equipment: $2,000

Loan payment of $550 per month

Salary drawn of $500 per month

You have conducted some market research for style and size of products you want to use to launch your business. The market research has indicated the following sales price ranges will be optimal for your area depending on style of products you choose to sell:

Collars

oWith pricing at $20 per collar, you can expect to sell 30 collars per day.

oWith pricing at $24 per collar, you can expect to sell 25 collars per day.

oWith pricing at $28 per collar, you can expect to sell 20 collars per day

Leashes

oWith pricing at $22 per leash, you can expect to sell 28 leashes per day.

oWith pricing at $26 per leash, you can expect to sell 23 leashes per day.

oWith pricing at $30 per leash, you can expect to sell 18 leashes per day.

Harnesses

oWith pricing at $25 per harness, you can expect to sell 25 harnesses per day.

oWith pricing at $30 per harness, you can expect to sell 22 harnesses per day.

oWith pricing at $35 per harness, you can expect to sell 20 harnesses per day.

You will need to compare your break-even points for the following target profits for each area of your business to determine your prices:

Collars

oBreak-even

o$300 target profit each month

o$500 target profit each month

Leashes

oBreak-even

o$400 target profit each month

o$600 target profit each month

Harnesses

oBreak-even

o$500 target profit each month

o$650 target profit each month

Question

• Statement of Cost of Goods Sold: Prepare the statement of cost of goods sold in the "COGS" tab of the workbook. Remember to show your work using calculations to the side of the table or using appropriate formulas in the table.
• Income Statement: Use the given revenue data to prepare the "Income Statement" tab table and calculate the net income. Remember to show your work using calculations to the side of the table or using appropriate formulas in the table.
• Variance Analysis: Prepare the data in the "Variances" tab to determine whether the variances are favorable or unfavorable. Remember to show your work using calculations to the side of the table or using appropriate formulas in the table.
• Complete thedata tablefor the variances by entering the budgeted (standard) and actual labor and material values. Remember to use the estimates for expected sales from your Milestone Two assignment.
• Determine thevariancesfor direct labor and direct materials in the "Variances" tab.
• Evaluate thesignificance of the variancesin the "Variances" tab, and mark them as favorable or unfavorable.

Fill in the Blank.

Statement of Costs of Goods Sold

Beginning Work in Process Inventory 0

Direct Materials:

Materials: Beginning 0

Add: Purchases for month of January ______

Materials available for use _______

Deduct: Ending materials ________

Materials Used ________

Direct Labor ________

Overhead ________

Total Costs _________

Deduct: Ending Work in Process Inventory 0

Cost of Goods Sold _________

Income Statement

Revenue:

Collars $_______

Leashes $______

Harnesses $_______

Total Revenue: $__________

Costs of Goods Sold $__________

Gross Profit $__________

Expenses:

General and administrative salaries $_______

Depreciation $_______

Rent $_______

Utilities and insurance $_______

Scissors, thread, and cording $_______

Loan $_______

Total Expenses $_________

Net Income/Loss $_________

Variances

Data for Variance Analysis

Budgeted Budgeted Actual Actual

Standard Hours/Qty Standard Rate Hours/Qty Rate

Labor ______ ______ ______ ______

Materials ________ ________ ________ _______

Variances for Collar Sales

Direct Labor Time Variance Variance Favorable/Unfavorable

(Actual Hours-Standards Hours) x Standard Rate $_______ ________

Direct Labor Rate Variance

(Actual Rate - Standard Rate) x Actual Hours $_______ __________

Direct Materials Quantity/ Efficiency Variance

(Actual Quantity - Standard Quantity) x Standard Price $_______ _________

Direct Materials Price Variance

(Actual Price - Standard Price) x Actual Quantity $________ ___________