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FINAL PROJECT TO BE COMPLETED WEEK BY WEEK, COMMENTS REVIEWED, THEN COMPILED IN WEEK 8 FOR GRADING This first intro page (1) can be deleted before submission PETER'S PET TOYS makes toys and supplies for cats and dogs out of reusable/recycled materials when possible. All problems and exercises are based on PETER'S PET TOYS. Week 3 Peter's Pet Toys uses a JOB ORDER COSTING system. It applies manufacturing overhead cost to jobs on the basis of direct labor hours. Past experience has shown this allocation base to have a good correlation with overhead. At the start of 2016, on Jan 1, estimates were for 10,000 direct labor hours at $20/hour. Total manufacturing overhead was estimated to be $140,000. (60 PTS) A) If you calculate the predetermined overhead rate first, save it for transaction #4. Record the journal entries below in correct format. A General Journal has been provided if you wish to use it. Use whole dollars only. No cents. 1. Raw materials were bought for $820,000 cash. 2. Cleaning Supplies were bought for $45,000 cash. 3. Raw materials requisitioned to be put into production were $745,000 4. Put into use in both the manufacturing factory and office were $20,000 of cleaning supplies; the expense was split evenly between the two facilities. 5. The payroll was: Administrative Salaries..............$182,000 Sales Commissions Exp...... .......$167,000 Direct Labor...........................$222,200 at $22/hour, 10,100 direct labor hours Indirect Labor.........................$92,000 All salaries and wages were recorded and paid in cash during the year. 6. Manufacturing Overhead was applied. 7. The advertising agency was owed $130,000, to be paid the following year. 8. Pet toys that were completed were transferred from Work in Process to Finished Goods, $600,000. 9. For the year, Sales totaled $980,000. All sales were on account to credit customers. Cost of Goods Sold was $398,000. 10. Depreciation of $84,000 was recorded for the year, one quarter on the manufacturing plant three quarters for the administrative office. 11. Insurance for the period was $26,000. 80% was allocated to the manufacturing facilities and 20% was allocated to the administrative office. Cash was paid for the insurance, which was expensed. The company does not use prepaid insurance. 12. Peter's Pet Toys pays an income tax rate of 18% on Net Operating Income. The taxes were paid before year end in cash. The entry to record income tax expense is best be recorded when the income statement is complete. B) The following select accounts have these beginning balances on Jan 1. This is not a complete listing of ledger beginning balances for Peter's Pet Toys. Cash, $4,000,000 Raw Materials Inventory, $10,000 Work in Process Inventory, $2,000 Finished Goods Inventory, $140,000 If you wish to use it, a partial general ledger has been provided in Excel (FINAL PROJ 3 OPTIONAL LEDGER) so that you may post the journal entries to determine account balances. You are not required to submit the ledger. There are no points for the ledger. C) Record the entry for underapplied or overapplied manufacturing overhead in the General Journal. D) Prepare a Schedule of Cost of Goods Manufactured in good form for 2016 with the proper heading. Be sure to double rule where necessary. Remember that it is applied manufacturing overhead, not actual manufacturing overhead that appears on the schedule. E) Prepare a Schedule of Cost of Goods Sold (adjusted by overhead) in good form for 2016 with the proper heading. Be sure to double rule where necessary. F) Prepare an Income Statement (traditional format as shown in the examples this week) in good form for 2016 with the proper heading. Income Taxes should be deducted to yield a final Net Income figure. Be sure to double rule where necessary. Reminder: Record the income tax expense in the general journal. GENERAL JOURNAL Date Debit Credit FINAL PROJECT TO BE COMPLETED WEEK BY WEEK, COMMENTS REVIEWED, THEN COMPILED IN WEEK 8 FOR GRADING This first intro page (1) can be deleted before submission PETER'S PET TOYS makes toys and supplies for cats and dogs out of reusable/recycled materials when possible. All problems and exercises are based on PETER'S PET TOYS. Week 4 (20 PTS) If you recall from week 3... Total sales for the current year for Peter's Pet Toys were $980,000. Looking ahead to next year, projections are for $1 million in sales. Fixed Expenses are estimated at $568,000. There are three main products sold by Peter's Pet Toys: Cat Castles, Dog Dens, and Pet Palaces. Based on past experience, the sales mix contribution margin ratio for each has been: Product Cat Castle Dog Den Pet Palace % of Sales ($1 million estimate) 45% 35% 20% CM Ratio 60% 72% 67% Required: a. Prepare a contribution margin/variable income statement in good form to show the sales mix stated and the contribution margins for each product as well as the contribution margin for the company. The time frame is next year. b. Calculate the breakeven point in sales dollars. c. Peter is considering adding a yearly donation of $20,000 to animal charities, which would be considered a fixed cost. If Peter factors in this addition to fixed expenses for next year, what would his breakeven point be? d. If Peter wishes to earn a minimum of $65,000 per year (before taxes) can he afford the donation? The before taxes stipulation coincides with the contribution margin income statement providing net operating income as the final result, not net income. You do not need to try to calculate for taxes. e. If Peter wished to review his advertising budget, which product should receive more promotion and why? f. Using the figures from the TOTALS column, assuming the $20,000 donation is added to fixed costs and becomes part of the annual fixed costs, answer the following questions in a color other than black. Each item is an independent scenario. The \"what if\" questions are not cumulative. (1) If sales do not increase as anticipated and remain $980K from the previous year, what would NOI be? (2) If Peter sets a target profit of only $50,000 NOI, what level of sales (in dollars) would generate $50,000? (3) If sales volume increased 6% beyond original projections of $1,000,000, what would NOI be? (4) Peter is concerned that a competitor's cheaper products may result in a decrease of his original anticipated sales volume by 5%. He also believes both variable costs and fixed costs (exclusive of the $20,000 donation which will remain unchanged year after year) could increase by 3%. In this scenario, what is Peter' Pet Toys NOI (or NOL), Contribution Margin Ratio, and Breakeven point in dollars? FINAL PROJECT TO BE COMPLETED WEEK BY WEEK, COMMENTS REVIEWED, THEN COMPILED IN WEEK 8 FOR GRADING This first intro page (1) can be deleted before submission PETER'S PET TOYS makes toys and supplies for cats and dogs out of reusable/recycled materials when possible. All problems and exercises are based on PETER'S PET TOYS. Week 4 (10 PTS) If you recall from week 4... Looking ahead to next year, projections are for $1 million in sales. Fixed Expenses were estimated at $568,000, but then another $20,000 was added in the form of a donation from the Company to increase fixed expense estimates to $588,000. Of this total amount, some of the fixed expenses are traceable, as indicated below. The 3 main products are how Peter's Pet Toys segments its operations. This is the same data as given in Week 3. Product Cat Castle Dog Den Pet Palace % of Sales ($1 million estimate) 45% 35% 20% CM Ratio 60% 72% 67% Peter's Pet Toys has traceable fixed expenses as follows: Cat Castle: Rental of a storage shed for the components that go into constructing the realistic looking crenellations at the top of the castle, giving it an authentic look, $40,000. Dog Den: Non-commissioned salary for a sales rep dedicated to the Dog Den, $59,000. Pet Palace: Depreciation on a special buzz saw needed to create the palace, $38,000. The remaining fixed expenses that are not traceable are common fixed expenses. Required: 1) Prepare a segmented income statement, segmented by product, for Peter's Pet Toys in good form for next year. All three product segments and totals should appear. Ratios should appear for all figures, as shown in the SEGMENTED INC STATE Excel document. Double rule as needed. 2) Beneath the segmented income statement indicate what the NOI or NOL would be for Pete's Pet Toys if the Pet Palace product were discontinued. FINAL PROJECT TO BE COMPLETED WEEK BY WEEK, COMMENTS REVIEWED, THEN COMPILED IN WEEK 8 FOR GRADING This first intro page (1) can be deleted before submission PETER'S PET TOYS makes toys and supplies for cats and dogs out of reusable/recycled materials when possible. All problems and exercises are based on PETER'S PET TOYS. 1 Week 7 (30 PTS) VARIANCE CALCUATION (PART A OF REQUIRED) AND INTERPRETATION (PART B OF REQUIRED). Peter is analyzing past variances reports for material and labor. Standards in effect: Pet Palace DM Standard: 5 lbs Styrofoam at $1.00/lb DL Standard: 2.4 hours at $19.40/hour VOH Standard, based on direct labor hours: 2.4 hours at $0.50/hour. Dog Den DM Standard: 4 sq feet of carpeting at $3.25/sq ft. DL Standard: 2.3 hours at $19.40/hour VOH Standard, based on direct labor hours: 2.3 hours at $0.48/hour. Cat Castle DM Standard: 6 board feet wood at $2.80/board foot. DL Standard: 3.1 hours at $19.40/hour VOH Standard, based on direct labor hours: 3.1 hours at $0.46/hour. Pet Palace Dog Den Cat Castle Output 28 palaces 50 dens 64 castles Job Cost Sheets (for examples, see the Excel doc, \"Job Cost Sheets\") and employee timecards showed the hours worked and wages earned during the time period: Pet Palace Dog Den Cat Castle 66 hours worked at $19.40/hour for total wages of $1280.40 121 hours worked at $20.52 for total wages of $2482.92 188 hours worked for total wages of $3517.48 Job Cost Sheets (for examples, see the Excel doc, \"Job Cost Sheets\") show the following Direct Materials requisitioned for production: Styrofoam..... 140 lbs for production of the Pet Palace. Carpeting......212 sq. ft. for production of the Dog Den. Wood........ 400 bd ft. for production of the Cat Castle. 2 Raw Materials Invoice for the time period showed: Warehouse Suppliers 9876 Stonefield La Mytown, USA 12345 Invoice #8956SL Date: xx/xx/xx Quantity 140 lbs 190 sq ft 350 board feet Item Styrofoam Carpeting Wood Unit Price $1.06/lb $3.24/sq ft $2.55/bd ft Total Total $ 148.40 615.60 892.50 $1656.50 Job Cost Sheets (for examples, see the Excel doc, \"Job Cost Sheets\") show Actual Variable Overhead Manufacturing Costs were Pet Palace Dog Den Cat Castle $32.50 $60.00 $84.00 Required: Use the U-shaped equations for all variance calculations. Part A: CALCULATIONS Calculate Price and Quantity Variances for Direct Materials for Pet Palaces, Dog Dens, and Cat Castles. That is 6 variances. When direct materials purchased = direct materials used in production, show the total Materials Spending Variance for each product. Calculate the Rate and Efficiency Variances for Direct Labor for the Pet Palaces, Dog Dens, and Cat Castles. That is 6 variances. Show the total Labor Spending Variance for each product. Calculate the Rate and Efficiency Variances Variable Overhead Variances for Pet Palaces, Dog Dens, and Cat Castles. That is 6 variances . Show the total Variable Overhead Spending Variance for each product.. Use 2 decimal places for all calculations to show cents. There may be slight rounding errors from truncating decimals to 2 places. Check your variance calculations using the \"Interactive Variance\" Excel doc by doing the following: Clear out all # and input Pet Palace data. Clear out all #s and input Dog Den data. Clear out all #s and input Cat Castle data. 3 PART B: INTERPRETATION After the calculating the variances, interpret their meaning by: (1) Offering a conclusion on how the Production Supervisor for each product is doing. There are 3 Production Supervisors, one for each product. (2) Offering a conclusion on how the Purchasing Manager for all raw materials is doing. Peter's Pet Toys has one single, company-wide Purchasing Manager. Please use complete sentences. Spelling/grammar is graded. 4 FINAL PROJECT TO BE COMPLETED WEEK BY WEEK, COMMENTS REVIEWED, THEN COMPILED IN WEEK 8 FOR GRADING This first intro page (1) can be deleted before submission PETER'S PET TOYS makes toys and supplies for cats and dogs out of reusable/recycled materials when possible. All problems and exercises are based on PETER'S PET TOYS. Week 6 (80 PTS) Using Word or Excel prepare the following budgets in order, for Peter's Pet Toys. Use good form. Double rule the completed budgets. Use $ signs for totals that represent dollars, to distinguish from units. Each budget should show 4 quarters of calendar year, and a total for the whole year, where appropriate. Terminology can be flexible. For example some schedules can be labeled budgets. Taken together, these individual budgets create the Master Budget. SALES FORECAST/BUDGET INFO 1) Prepare two Sales Budget by Quarter, given the following information. Format for 2 decimal Cat places.Dog Pet Castle Den Palace $384.9 Sales price, constant all year 4 $466.67 $412.37 Q1 projected sales units 247 180 100 Q2 projected sales units 281 188 115 Q3 projected sales units 308 190 131 Q4 projected sales units 333 192 139 General format/layout of the first sales budget. Castle Q1 Den Palace Castle Q2 Den Palace Castle Q3 Den Budgeted Units Sales prices Total Budgeted Sales General format of the second sales budget which will show only total sales for each quarter Q1 Total Budgeted Sales Dollars Q2 Q3 Q4 Total Palace Castle Q4 Den Palace 2) CASH COLLECTION INFORMATION for SCHEDULE OF CASH COLLECTIONS 80%3)ofPRODUCTION sales - customers use a creditforcard INFORMATION PRODUCTION BUDGET Peter's Pet Toys receives cash in the month offor sale, minus a credit card fee of 5% of the sale. Production - The 3 products can be aggregated production purposes. The sum of all the castles, dens, and palaces--combined--are the units used in the production budget. 10%There of sales - cash, immediate receipt budget of cash for upon saleproduct as they undergo the same production process. is not a separate production each 10%Peter's of sales - Peter's PettoToys offers terms of n/90, allowing thelevel customer pay inquarter's full the Finished Goods ending inventory. Pet Toys likes keep 5% of the next quarter's sales as the to current next quarter sale is made. Projections areafter that the Projected Units Sold in Q1 of the following year will be unchanged from Q4 the previous year. Format for whole #s. No decimal places. Rounding differences or errors of +/- 1 are acceptable. Beginning A/R Finished Balance isGoods $25,000, collected in units. its entirety in the first quarter. Beginning Inv for Q1 is 20 Below is the start of the body of the production budget. Format for whole #s or 2 decimals, as you wish. An outline of the schedule is shown below. Q1 Q2 Budgeted Unit Sales per Quarter, based on all products combined A/R, Beginning balance Cash Sales (10% of sales) Credit card sales (80% of sales less 5% credit card fee) Sales on account, n/90 Totals $25,000 Q1 Q3 Q2 Q4 Q3 Year Q4 (next qrtr same as this qrtr) 4) DIRECT MATERIALS BUDGET INFORMATION for DIRECT MATERIALS BUDGET The totals of the Production Budget will be used to determine the amount and cost of Direct Material needed. The amount of raw material needed to produce each completed toy is 15 lbs. Raw material cost is $1.05/lb. for Q1, Q2, Q3. It is projected to rise to $1.08/ lb. in Q4 Peter's Pet Toys likes to keep 10% of the next quarter's raw material needs, plus an additional 20 lbs. in the current quarter's ending raw material inventory. It is anticipated that Raw Material required in Q1 of the following year will be unchanged from Q4 the previous year. Format for whole #s except for the raw material cost per unit of $1.05 or $1.08. No other decimals besides these. Rounding differences or errors of +/- 1 are acceptable. Beginning Raw Materials Inv for Q1 is 75 lbs. 5) DIRECT LABOR BUDGET INFORMATION Direct labor hours per unit of production is 4.2. Wages are $18.50 per hour for Q1, Q2, and will rise to $19.50 per hour in Q3, Q4 Format for whole #s except for the labor hours of 4.2 and cost per unit of $18.50 or $19.50 No other decimals besides these. 6) CASH PAYMENTS BUDGET INFORMATION To obtain the low prices for materials, Peter's Pet Toys must pay its supplier in cash upon receipt. As a result the final line of the Direct Materials Budget also serves as the Cash Payments Budget. An additional Cash Payments Budget is not needed. 7) MANUFACTURING OVERHEAD BUDGET--TOTAL FACTORY OH AND CASH SPENT ON MFG OVERHEAD SHOULD BE SHOWN IN BUDGET Variable Mfg Overhead per quarter is for each successive quarter, $13,845, $13,972, $14,010, $14,216. The Fixed Mfg Overhead includes: Storage Shed Rental Expense (Cat Castle) $10,000 for each of the 4 quarters Depreciation Expense-Buzz Saw (Dog Den) $9,500 for each of the 4 quarters Depreciation Plant, $100,000 per year; equally divided among the 4 quarters Fixed Component of Maintenance Costs: $20,000 each quarter Fixed Component of Utilities Costs, $8,000 each quarter Plant Insurance Costs, $3,000 each quarter Format for whole #s. No decimals. 8) SELLING AND ADMINISTRATIVE EXPENSES---TOTAL S&A EXPENSE AND CASH SPENT ON S&A SHOULD BE SHOWN IN BUDGET Donation Expense, $20,000 in Q1 only. This will be an annual donation. Delivery and Assembly, $16 per unit sold. (See sales budget) Note: Certain items appear Sales Commission, $59,000, all paid in Q4. (Pet Palace) Salaries Expenses, $200,000, divided evenly among quarters Depreciation Expense on Office, $20,000 annually, evenly divided each quarter Fixed component of Maintenance Expense, $1500per quarter Fixed Component of Utilities Expense, $1,000 each quarter Office Insurance Expense, $9,000 each quarter Format for whole #s. No decimals. The outline for this budget is presented for you. 8) CASH BUDGET info to create a CASH BUDGET. In addition to the above budgets, which show the effects on cash, the following information is needed to complete the Cash budget: in both the Mfg OH Budget AND the S&A Budget. Same type of cost/expense appears in the factory and the office. Beginning cash balance is $4,000,000. An addition of $40,000 was made to Plant, Property, and Equipment in Q3. Cash was paid. In Q4 cash dividends to investors in the amount of $17,000 were issued. No financing, no borrowing, no interest, no repayments. The cash balance remains very high throughout the year. Format for whole #s. No decimals. Answer 1 Unit Cost under Variable Costing Direct Materials Direct labor Variable Manufacturing OH Variable Selling & Administrative OH Per Unit Variable Costs 2 3 4 Unit Cost under Absorption Costing Units Produced Variable Costs Direct Materials Direct labor Variable Manufacturing OH Variable Selling & Administrative OH Total Variable costs Fixed Costs Indirect Labor Indirect Material Fixed Manufacturing OH Fixed Selling & Administrative OH Total Fixed Costs Total Costs Per unit cost Income Statement Variable Costing Units sold Sales revenue Variable Costs Direct Materials Direct labor Variable Manufacturing OH Variable Selling & Administrative OH Total Variable costs Contribution Margin Fixed Costs Indirect Labor Indirect Material Fixed Manufacturing OH Fixed Selling & Administrative OH Total Fixed Costs Operating Income Income Statement Absorption Costing Units Produced Sales revenue Variable Costs Direct Materials Per Unit $ 40 25 8 9 $ 82 Per Unit $ $ Total 10,000 40 $ 25 8 9 82 $ 400,000 250,000 80,000 90,000 820,000 80,000 3,000 150,000 272,000 505,000 1,325,000 $ 132.50 Per Unit $ $ $ $ Total 8,750 300 $ 2,625,000 40 $ 350,000 25 218,750 8 70,000 9 78,750 82 $ 717,500 218 $ 1,907,500 80,000 3,000 150,000 272,000 505,000 1,402,500 Per Unit $ $ Total 10,000 300 $ 2,625,000 40 $ 400,000 Direct labor Variable Manufacturing OH Variable Selling & Administrative OH Total Variable costs Fixed Costs Indirect Labor Indirect Material Fixed Manufacturing OH Fixed Selling & Administrative OH Total Fixed Costs Total Costs Less Ending Inventory Cost of Goods Sold Operating Income 5 6 $ 25 8 9 82 $ 50.5 132.5 recociliation of profits under both methods Prfits as per Absorption Costing Less Fixed Cost included in ending inventory Profits as per Variable Costing Break Even Point In Units= Fixed Costs / CM per unit In dollars 250,000 80,000 90,000 820,000 80,000 3,000 150,000 272,000 505,000 1,325,000 165,625 1,159,375 1,465,625 1,465,625 63,125 1,402,500 2317 $ 695,100 FINAL PROJECT TO BE COMPLETED WEEK BY WEEK, COMMENTS REVIEWED, THEN COMPILED IN WEEK 8 FOR GRADING This first intro page (1) can be deleted before submission PETER'S PET TOYS makes toys and supplies for cats and dogs out of reusable/recycled materials when possible. All problems and exercises are based on PETER'S PET TOYS. Week 3 Peter's Pet Toys uses a JOB ORDER COSTING system. It applies manufacturing overhead cost to jobs on the basis of direct labor hours. Past experience has shown this allocation base to have a good correlation with overhead. At the start of 2016, on Jan 1, estimates were for 10,000 direct labor hours at $20/hour. Total manufacturing overhead was estimated to be $140,000. (60 PTS) A) If you calculate the predetermined overhead rate first, save it for transaction #4. Record the journal entries below in correct format. A General Journal has been provided if you wish to use it. Use whole dollars only. No cents. 1. Raw materials were bought for $820,000 cash. 2. Cleaning Supplies were bought for $45,000 cash. 3. Raw materials requisitioned to be put into production were $745,000 4. Put into use in both the manufacturing factory and office were $20,000 of cleaning supplies; the expense was split evenly between the two facilities. 5. The payroll was: Administrative Salaries..............$182,000 Sales Commissions Exp...... .......$167,000 Direct Labor...........................$222,200 at $22/hour, 10,100 direct labor hours Indirect Labor.........................$92,000 All salaries and wages were recorded and paid in cash during the year. 6. Manufacturing Overhead was applied. 7. The advertising agency was owed $130,000, to be paid the following year. 8. Pet toys that were completed were transferred from Work in Process to Finished Goods, $600,000. 9. For the year, Sales totaled $980,000. All sales were on account to credit customers. Cost of Goods Sold was $398,000. 10. Depreciation of $84,000 was recorded for the year, one quarter on the manufacturing plant three quarters for the administrative office. 11. Insurance for the period was $26,000. 80% was allocated to the manufacturing facilities and 20% was allocated to the administrative office. Cash was paid for the insurance, which was expensed. The company does not use prepaid insurance. 12. Peter's Pet Toys pays an income tax rate of 18% on Net Operating Income. The taxes were paid before year end in cash. The entry to record income tax expense is best be recorded when the income statement is complete. B) The following select accounts have these beginning balances on Jan 1. This is not a complete listing of ledger beginning balances for Peter's Pet Toys. Cash, $4,000,000 Raw Materials Inventory, $10,000 Work in Process Inventory, $2,000 Finished Goods Inventory, $140,000 If you wish to use it, a partial general ledger has been provided in Excel (FINAL PROJ 3 OPTIONAL LEDGER) so that you may post the journal entries to determine account balances. You are not required to submit the ledger. There are no points for the ledger. C) Record the entry for underapplied or overapplied manufacturing overhead in the General Journal. D) Prepare a Schedule of Cost of Goods Manufactured in good form for 2016 with the proper heading. Be sure to double rule where necessary. Remember that it is applied manufacturing overhead, not actual manufacturing overhead that appears on the schedule. E) Prepare a Schedule of Cost of Goods Sold (adjusted by overhead) in good form for 2016 with the proper heading. Be sure to double rule where necessary. F) Prepare an Income Statement (traditional format as shown in the examples this week) in good form for 2016 with the proper heading. Income Taxes should be deducted to yield a final Net Income figure. Be sure to double rule where necessary. Reminder: Record the income tax expense in the general journal. Solutions a) GENERAL JOURNAL Date 2016 2016 2016 2016 2016 2016 2016 2016 2016 2016 2016 Raw material Inventory Cash To record raw materials purchased by cash Cleaning Supplies Cash To record cleaning sup. purchased by cash Work-in -Process inventory Raw material inventory Record raw materials put in production Factory Overhead Control Cleaning Expense Cleaning Supplies (Record cleaning supplies utilized) Salaries expense Commissions Work-in-Process Inventory Factory overhead control Cash (to record payroll cost) Work-in-Process Inventory Factory overhead control (record overheads applied) Advertising Expense Advertising Payable (to record amount owed to advert agen. Finished goods inventory Work-in-Process inventory (record WIP transferred to fin. Goods) Accounts receivable Sales To record sales for year Cost of Goods sold Finished goods inventory To record inventory sold Depreciation Expense Factory Overhead control Accumulated Depreciation To record depreciation Debit 820,000 Credit 820,000 45,000 45,000 745,000 745,000 10,000 10,000 20,000 182,000 167,000 222,200 92,000 663,200 140,000 140,000 130,000 130,000 600,000 600,000 980,000 980,000 398,000 398,000 63,000 21,000 84,000 2016 2016 Factory overhead control Insurance expense Cash (Record insurance for the year) Income tax expense Cash (Record income tax expense for year) 20,800 5,200 26,000 3,780 3,780 c) GENERAL JOURNAL Date 2016 Cost of good sold Factory overhead control (To record overhead under applied) Debit 3,800 Credit 3,800 d) Peter's Pet Toys Schedule of Goods Manufactured For the period ended 31st December 2016 $ Raw materials: Beginning raw materials inventory Add: Purchase of raw materials Raw materials available for use Less: Ending raw materials inventory Raw materials used in production Direct Labor Manufacturing overheads applied to work-in-Process Total Manufacturing costs Add: Beginning Work-in-Process Less: Ending Work-in-Process Cost of goods Manufactured e) $ 10,000 820,000 830,000 (85,000) 745,000 222,200 140,000 1,107,200 2,000 1,109,200 (509,200) 600,000 Peter's Pet Toys Schedule of Cost of Goods Sold For the period ended 31st December 2016 $ Beginning Finished Goods inventory Add: Cost of Goods Manufactured Goods available for Sale Less: Ending Finished Goods inventory Unadjusted Cost of Goods sold Add: Underapplied overhead Adjusted cost of goods sold $ 140,000 600,000 740,000 (342,000) 398,000 3,800 401,800 f) Peter's Pet Toys Income Statement For the period ended 31st December 2016 $ Sales Less: Cost of goods sold Gross Profit Administrative and selling expenses: Administrative expenses Selling Expenses Income before tax Income tax 390,200 167,000 $ 980,000 (401,800) 578,200 557,200 21,000 (3,780) 17,220 FINAL PROJECT TO BE COMPLETED WEEK BY WEEK, COMMENTS REVIEWED, THEN COMPILED IN WEEK 8 FOR GRADING This first intro page (1) can be deleted before submission PETER'S PET TOYS makes toys and supplies for cats and dogs out of reusable/recycled materials when possible. All problems and exercises are based on PETER'S PET TOYS. Week 4 (20 PTS) If you recall from week 3... Total sales for the current year for Peter's Pet Toys were $980,000. Looking ahead to next year, projections are for $1 million in sales. Fixed Expenses are estimated at $568,000. There are three main products sold by Peter's Pet Toys: Cat Castles, Dog Dens, and Pet Palaces. Based on past experience, the sales mix contribution margin ratio for each has been: Product Cat Castle Dog Den Pet Palace % of Sales ($1 million estimate) 45% 35% 20% CM Ratio 60% 72% 67% Required: a. Prepare a contribution margin/variable income statement in good form to show the sales mix stated and the contribution margins for each product as well as the contribution margin for the company. The time frame is next year. b. Calculate the breakeven point in sales dollars. c. Peter is considering adding a yearly donation of $20,000 to animal charities, which would be considered a fixed cost. If Peter factors in this addition to fixed expenses for next year, what would his breakeven point be? d. If Peter wishes to earn a minimum of $65,000 per year (before taxes) can he afford the donation? The before taxes stipulation coincides with the contribution margin income statement providing net operating income as the final result, not net income. You do not need to try to calculate for taxes. e. If Peter wished to review his advertising budget, which product should receive more promotion and why? f. Using the figures from the TOTALS column, assuming the $20,000 donation is added to fixed costs and becomes part of the annual fixed costs, answer the following questions in a color other than black. Each item is an independent scenario. The \"what if\" questions are not cumulative. (1) If sales do not increase as anticipated and remain $980K from the previous year, what would NOI be? (2) If Peter sets a target profit of only $50,000 NOI, what level of sales (in dollars) would generate $50,000? (3) If sales volume increased 6% beyond original projections of $1,000,000, what would NOI be? (4) Peter is concerned that a competitor's cheaper products may result in a decrease of his original anticipated sales volume by 5%. He also believes both variable costs and fixed costs (exclusive of the $20,000 donation which will remain unchanged year after year) could increase by 3%. In this scenario, what is Peter' Pet Toys NOI (or NOL), Contribution Margin Ratio, and Breakeven point in dollars? Solutions a). Peter's Pet Toys Contribution Margin Income Statement For the period ending 31 December 2017 Sales Less: Variable Costs Contribution Margin Less: Fixed Expenses Net Operating Income Cat Castle 450,000 180,000 270,000 Dog Den 350,000 98,000 252,000 Pet Palace 200,000 66,000 134,000 Total 1,000,000 344,000 656,000 568,000 88,000 b). Break-Even point in sales dollars *Overall Contribution Margin = Total Fixed Expenses/Overall Contribution Margin = 568,000/0.656* = $ 865,853.66 = 656,000/1,000,000 = 0.656 = Total Fixed Expenses/Overall Contribution Margin = (568,000+20,000)/0.656* = $ 896,341.46 c). Break-Even point in sales dollars d). Contribution Margin Income statement with $20,000 donation. Peter's Pet Toys Contribution Margin Income Statement For the period ending 31 December 2017 Sales Less: Variable Costs Contribution Margin Less: Fixed Expenses Net Operating Income Cat Castle 450,000 180,000 270,000 Dog Den 350,000 98,000 252,000 Pet Palace 200,000 66,000 134,000 Total 1,000,000 344,000 656,000 588,000 68,000 Yes, Peter can afford the donation since the Net Operating Income comes to $ 68,000 e). The product that should get more advertising promotion should be Dog Den. This is because it has the highest contribution margin of all the tree products. f), 1. Net Operating income with current sales $ 980,000 Peter's Pet Toys Contribution Margin Income Statement For the period ending 31 December 2017 Sales Less: Variable Costs Contribution Margin Less: Fixed Expenses Net Operating Income Cat Castle 441,000 176,400 264,600 Dog Den 343,000 96,040 246,960 Pet Palace 196,000 64,680 131,320 Total 980,000 337,120 642,880 588,000 54,880 2. Target profit of $ 50,000 Sales required = (588,000 + 20,000)/0.656 = $ 926,829.27 3. Sales volume increase by 6% over projected $ 1,000,000 Peter's Pet Toys Contribution Margin Income Statement For the period ending 31 December 2017 Sales Less: Variable Costs Contribution Margin Less: Fixed Expenses Net Operating Income Cat Castle 477,000 190,800 286,200 Dog Den 371,000 103,880 67,120 Pet Palace 212,000 69,960 142,040 4. Net operating income break even and contribution margin Total 1,060,000 364,640 695,360 588,000 107,360 Peter's Pet Toys Contribution Margin Income Statement For the period ending 31 December 2017 Sales Less: Variable Costs Contribution Margin Less: Fixed Expenses Net Operating Income Cat Castle 427,500 181,692 245,808 Dog Den 332,500 98,921.20 233,578.80 Break Even in sales dollars = = 605,040/0.63449 $ 953,583.35 Contribution Margin = = 602,766.40/950,000 0.63449 or 63.449% Pet Palace 190,000 66,620.40 123,379.60 Total 950,000 347,233.60 602,766.40 605,040.00 (2,273.60)