McPeter's Yum-Yum Two couples, the Macks and the Petersons, have been neighbors for over 20 years. They discovered that the four of them have exceptional baking skills. They have all traveled extensively, taken baking classes, and have each worked in respectable, prestigious bakeries and restaurants. Over the years they have united their baking skills and baking passions and have taken advantage of every opportunity to distribute their baked good to family and friends. It did not take long before their mere sharing of baked goods developed into orders. The Macks and Petersons found themselves in the catering business. That is, they were quite often hired to cater the dessert section of menus for wedding, parties, banquets, etc. About three year ago, the McPeter's Yum-Yum Company was legally formed and licensed to do business. Demand grew such that their kitchens were deemed too small for business. They relocated to a much larger facility and have a small staff of workers. The Macks and Petersons expanded their operations to include private catering as well as placement in grocery stores. Consequently, they recently retained the services of Mario Patterson, a CPA, to assist them in managing the financial affairs of the company. The Macks and Petersons see a profitable future for McPeter's Yum-Yum Company. They have asked Mario to focus specifically on growth and profitability. Mario Patterson has determined that there is a need for a lot of cost analysis, especially regarding the determination of the cost of baking their specialty, cookies. His goal is to determine a product costing system that can be used for pricing decisions and product-line planning and budgeting. He has asked you, one of the administrative staff persons for McPeters Yum-Yum, to provide basic information that would serve as a starting point. You provided Exhibit 1 showing actual costs and revenue data for 2019. During that year, McPeter's sold 15,334 boxes of cookies for $25 per box. After receiving the information, Mr. Patterson asked you, his management intern, to (1) classify each of the expenses as either Product (direct material, direct labor, and factory overhead) or period, (2) classify each expense as a variable, fixed, or mixed. He asked that you clearly justify the classification you assign to each. (3), Mr. Patterson wants you to determine breakeven based on your classification in (2) above. You can consider any mixed costs to be 50% variable, and 50% fixed. What is your evaluation of how McPeter's Yum-Yum is doing relative to breakeven? (4)Write a memo to Mr. Patterson in response to his requests. Be sure to present your responses clearly. You may present exhibits to accompany your memo. Exhibit 1. McPeter's Yum Yum Income Statement For the Year Ended December 31, 2019 Sales ($25 per box) $383,350 Expenses: Raw materials (Baking) Labor (Bakers' salaries) Wages (General Bakery area, hourly) Supplies (General Bakery area) Shipping to Customers (delivery truck) Electricity (general baking area) Water (general baking area) Routine Monthy Maintenance (general baking area) Wireless and Telephone (Administrative) Salaries-Owners (administrative) Sales Commission (salesforce) Total Expenses $163,967 99,384 28,684 1,942 13,888 8,700 2,147 7,380 1,150 22,000 12,334 361,576 Net Income $21,774
