Michelle and Vishayla need to know the cost per cake so they can be sure they are charging enough for each cake. They also need this to calculate the cost of goods sold. They feel that direct labor hour is the best cost driver for allocating manufacturing overhead. They pay their wage employees $$12\mathrm{.}00$ per hour. Due to the type of production that they have, they believe job order costing is the best costing system. Here is the estimated data for $2023$:

$$Type of cake Expected Annual sales Selling Price per cake Raw Ingredient cost per cake Direct Labor Hour per cake

$1$ tier wedding cake $200$ $$195$ $$354$

$2$ tier wedding cake $300$ $$300$ $$506$

$3$ tier wedding cake $200$ $$400$ $$757$

Large sheet cake $450$ $$125$ $$253$

Medium sheet cake $600$ $$85$ $$152$

Small sheet cake $750$ $$50$ $$101\mathrm{.}5$

Expense Cost behavior Estimated annual amount Additional information

Raw materials Variable $$64,750$ All are purchased as needed to avoid spoilage and to have the freshest ingredients

Bakery wages and salary Mixed $$118,250$ The supervisor does not do any of the baking$*$

Administrative salaries Fixed $$65,000$ The accountant and office worker

Michelle and Vishayla's salary Fixed $$40,000$ Consider themselves CEO and COO

Salesman's salary Variable $$18,500$

Supplies Variable $$1,500$ All used in the bakery

Utilities $($electric$)$ Variable $$2,50085\%$ is for the bakery and $15\%$ is for the administrative office

Utilities $($Gas$)$ for ovens Variable $$1,500$ All for bakery

Water Variable $$600$ All for bakery

Repairs and maintenance Fixed $$2,300$ All for bakery

Rent expense Fixed $$12,00080\%$ is for the bakery and $20\%$ is for the administrative office

Telephone and internet Fixed $$1,200$ All for administrative office

$*$ This total includes the supervisor's salary which is a fixed cost.

$($Hint: Calculate direct labor based on the number of cakes. The difference between the amount calculated and the annual amount above is the supervisor's salary$)$

$$

They have asked you to determine the following:

$1)$ Calculate the cost per cake

$2)$ Create a budgeted Traditional Income Statement and a Contribution Income Statement

$3)$ Calculate breakeven point for the company. Calculate their margin of safety.

$4.$ They would like to know how much their total sales would need to be to achieve a target profit of $$100,000.$

$5.$ Michelle and Vishayla are thinking of expanding their operation and purchasing the building next door. The new building will cost $$250,000($their only asset$)$ and they expect that their sales would increase by $35\%$ and net operating income to increase by $25\%.$ Calculate their margin, turnover, and return on assets.

$6.$ They appreciate your expertise and would like to hear some of your suggestions on how they can improve their business.