MANUFACTURING OVERHEAD BUDGET

First, we need to determine whether each manufacturing overhead expense is variable or fixed. It has been determined that all the manufacturing overhead costs are fixed, although salary of part-time workers and utilities can be variable or mixed expenses as well.

Manufacturing Overhead Budget 1st Quarter
	January	February	March	Total
Fixed manufacturing overhead costs:
Salary of 2 part-time workers
Rent and utilities expense
Supplies for making milk shakes
Depreciation milk shake maker
Depreciation refrigerator/freezer
Depreciation counter tops
TOTAL FIXED COSTS

OPERATING BUDGET

First we need to determine whether each operating budget expense is variable or fixed. It has been determined that all the operating costs are fixed.

Operating Budget 1st Quarter
	January	February	March	Total
Fixed operating expenses:
Depreciation tables and benches
Insurance expense
Interest expense
Advertising expense
Accounting and bookkeeping expense
Owners salary expense
Dues and membership expense
Licenses and Permits expense
Maintenance expense
Office supplies expense
Depreciation sign
TOTAL FIXED COSTS

. ANSWERS TO THE FIRST PART OF THE CASE: Presented below is one possible answer to this case using only information provided in the case with the following assumptions: 1) the milkshake's sales-mix will be 60% large and 40% small, 2) the suggested sales prices are used to be competitive with other vendors, and the milkshake makers, tables and benches are assumed to last for 3 years, but the refrigerator/freezer and counter tops are assumed to last for 10 years and the sign is assumed to last only one year. Since this is a simulation exercise, the case allows students to see how the break-even sales volume changes depending upon different assumptions about product sales-mix, sale prices, depreciable lives of long-term assets as well as variable costs, and allows them to add other necessary fixed costs to the cost structure of the business conditional on their own unique business strategy. Consequently, their answers may vary. Monthly fixed costs: Salary of 2 part-time workers 1,600.00 Rental 500.00 Supplies 100.00 Milk Shake Maker depreciation 20.00_720/36months) Refrigerator/freezer depreciation 4.00 (480/120 months) Counter tops depreciation 10.00 (1,200/120months) Tables and benches depreciation 20.00 (1,080/36 months) Annual insurance 50.00 (600/12months) Interest on loan 101.24 Advertising expense 5,000.00 Accounting and bookkeeping expense 500.00 Owner's salary and benefits 8,000.00 Dues and membership fees 167.00 Licenses and permit fees 50.00 Maintenance services 400.00 Office supplies 300.00 Sign 837_4100/12months) Total monthly Fixed Costs $16,840.61 +Variable Costs per unit: Ingredient Cost Whole milk $15 for 640 oz. Cream $20 for 128 oz. Sugar $10 for 30 cups Premium Vanilla Ice Cream $24 for 600 oz. Flavorings Flavored Specialty Straws Cups-8 ounces $200 for 500 cups Cups-12 ounces $250 for 500 cups TOTAL DIRECT MATERIAL COST PER UNIT 0.02344 per oz. 0.15625 per oz. 0.33333 per cup 0.04000 per oz. Small Large 0.05 0.07 0.31 0.47 0.17 0.25 0.36 0.25 0.40 0.75 0.40 0.24 0.75 0.40000 per cup 0.50000 per cup 0.50 $2.17 $2.80 Variable Cost Income Statement: using a 40% (small) and 60% (large) sales-mix in determining the break-even sales volume: Small (40%) $7*90%=6.3*40% 2.520 Sales after taking out the 10% owed to resort Large (60%) $10*90%-$9*60%= 5.400 Weighted total 7.920 per unit Variable cost 2.17*40%=.868 2.80*60%=1.680 2.548 per unit Contribution margin 1.652 3.720 5.372 per unit Total Fixed costs 16,840.61 per month 1) You will need to sell 3,135 milkshakes/month to break even = ($16,840.61/5.372) 1,254 (3,135*40%) will be small and 1,881 (3,135*60%) will be large. Variable Cost Income Statement: using 40% (small) and 60% (large) sales-mix in determining the break-even sales volume (no salary allowance for owner): Small (40%) Large (60%) Weighted total Sales after taking out 10% $6.30*1,254milkshakes $9*1,881 milkshakes $24,829.20 owed to resort $7,900.20 $ 16,929.00 - Variable cost $2.17*1,254milkshakes $2.80*1,881milkshakes $ 7,987.98 $2.721.18 $5,266.80 Contribution margin $5,179.02 $11,662.20 $16,841.22 Total Fixed costs $16,840.61 Net Income 0.61 rounding error Note: The break even sales volume is 3,134.89 milkshakes. The Variable Cost Income Statement uses the breakeven quantity of 3,135 milkshakes. A small gain is shown due to rounding error since you cannot sell fractional milkshakes