Case 10-1: Joon single plant that produces all four of its product lines: Stick Goods (brooms and mops). Floor Care (strippers, soap, and waxes), Brushes (hair brushes and shoe brushes), and Aerosols (room deodorizers, bug spray, furniture wax). The following statement summarizes Joon's financial performance for the most Joon manufactures and sells to retailers a variety of home care and personal care products. Joon has a recent fiscal year Stick Goods Total Quantity (000 cases) 20 Direct labor hours case 15 Total direct labor hours (000) 30 Manufacturing cost per case Direct material Variable overhead Direct labor cost Fixed overhead Total cost per case Selling price per case S Total revere (000) Selling general, and administrative (000) Fixed $51.00 5.25 315 465 $134.25 $165.0 3,300 Floor Care 35 1 35 Brushes $21.00 35 21.0 31.0 $76.5 $122.0 4270 15 2 30 Aerosol $31.00 7.0 42.0 62.0 $142.0 $189.0 2,835 30 16 48 $11 143 5.6 33.6 49.6 $09 80 $145.0 4350 $14,755.00 Variable (20% of revenues) (1.350.00) (2.951.00) $ (3250) Net income (loss) (000) Alion is allocated to Direct labor costs $21 per hour Fixed manufacturing overhead of $4,433 products based on direct labor hours. Last year, the fixed manufacturing overhead rate was $31 per direct labor hour ($4,433 million/143,000 direct labor hours) Variable manufacturing overhead is $3.50 per direct labor hour Selling general and administrative (SG&A) expenses consist of fixed costs ($1.35 million) and variable costs ($2.951 million). The variable SG&A is 20 percent of revermes. The Joon plant has considerable excess capacity. Senior management has identified a potential acquisition target. Snuffy, that sells a line of automotive products (car waxes, soap, brushes, and so forth) that are complementary to Joon's existing products and that can be manifactured in Joon's existing products and that can be manifactured in Joon's plant Staffy does not have any manufacturing facilities, but rather outsources the production of his products to contract manufacturers. Smutty can be prchases for $38 million. The following table summarizes Southy's current operating data Smatty Operating Data Most Recent Fiscal Year Quantity (000 cases) Direct labor hours per case Direct material per case Selling price per case Additional fixed manufacturing overhead Additional fixed SG&A Car Care 60 19 $18 $138 $450,000 $400,000 Senior management argues that the reason Joon is currently losing money is that volumes have fallen in the plant and that the remaining products are having to carry and mcreasingly larger share overhead. This has caused some Joon product managers to raise prices. Senior managers realize that they must drive more volume into the plant if Joon is to return to profitability. Since organic growth (Le growth from existing products) is difficult due to the board of directors the purchase of Snuffy as a way to drive additional volume into the plant. With volume of 60,000 cases and 1.9 direct labor hours per case Smutty's car care product line will add 114,000 direct labor hours to the plant and increase volume about 80 percent (114,000/143,000). This additional volume will significantly reduce the overhead the existing products must absorb and allow the product managers to lower prices. To incorporate Soutty's manufacturing and distribution into Joon's current manufacturing overhead of $450,000 per year for new equipment and $400,000 per year for additional SG&A expenses. 11 Required a Prepare a pro forma financial statement that shows Joon's financial performance (net income) for the most recent year assuming that Joon has already acquired Snutty's car care products and has incorporated them into Joon's manufacturing and SG&A processes. In preparing your analysis make the following assumptions: L Snuity's products have the same fixed and variable cost structure as Joon's existing lines (te, variable overhead is $3.50 per direct labor bour, and variable SG&A is 20 percent of revenues). The addition of Snuffy products does not change the demand for Joon's existing products.