Part 1 Contribution Margin/Breakeven

	Chocolate Chip	Sugar	Specialty	Total
Units Sold	1,500,000	980,000	300,000	2,780,000
Sales	$1,875,000.00	$882,000.00	$1,050,000.00	$3,807,000.00
Less: Variable Costs	$690,000.00	$205,800.00	$81,000.00	$976,800.00
Contribution Margin	$1,185,000.00	$676,200.00	$969,000.00	$2,830,200.00
Less: Common Fixed Costs				$125,000.00
Profit				$2,705,200.00
Per item Contribution Margin	$7.90	$0.69	$3.23
Weighted Average Contribution Margin	$1.98
Break-even point in units	63,158

Discuss the results based on your calculations as far as which type of cookie you think is the most profitable, which has the highest CM, etc.

Part 2 Full and Variable Costing

Productions Costs:
Direct material	$0.60
Direct labor	$1.00
Variable manufacturing overhead	$0.40
Total variable manufacturing costs per unit	$2.00
Fixed manufacturing overhead per year	$139,000.00
In addition, the company has fixed selling and administrative costs:
Fixed selling costs per year	$50,000.00
Fixed administrative costs per year	$65,000.00
Selling price per cookie	$3.75
Number of cookies produced	2,780,000
Number of cookies sold	2,600,000
Full (absorption) costing :
Full cost per unit	$2.05
Ending Inventory Full (absorption) costing	$369,000
Variable costing :
Variable cost per unit	$2.00
Ending Inventory Variable costing	$360,000

Discuss the results, and comment on which method you think is more helpful to managers and why.

Part 3 Special Order

Number of cookies needed	1,000
Discounted price per cookie	$2.75
Normal price per cookie	$3.75
Cost of special printed design per cookie	$0.50
Cost of tool needed to make the design	$100.00
Revenue for special order	$2,750.00
Costs for special order:
Design cost	$500
Tool cost	$100
Net increase (decrease) in profit	$2,150

Discuss the results and comment on if you think the cookie business should take on this special order of cookies for a wedding. Business has been slow the last few months, and the offer is less than the usual selling price for the cookies.

As part of your discussion, include both quantitative (based on the numbers) and qualitative (not based on numbers) factors that would go into the decision to take on the special order.

Part 4 Internal Rate of Return

As the owner of the Cookie Business, you are considering the following investment:
Purchase of new equipment	$250,000.00
Expected annual increase in sales	$48,017.50
Time frame	7	years
Acceptable rate needed	9%
Calculate the Internal Rate of Return:
PV of annuity factor	5.2064
Internal rate of return	8%
Accept or reject	reject

Discuss if you think the cookie business should accept or reject the purchase of the new equipment and why.

Additional information has come to your attention regarding the equipment purchase. One of the partner's brother owns the company that sells the equipment and insists the equipment is needed. Discuss any ethical concerns you see with this type of transaction.

Part 5 Cash Budget

The budgeted credit sales are as follows:
December last year	$250,000
January	$125,000
February	$300,000
March	$90,000
Collection:
Month of the sale	80%
Month following the sale	20%
Estimated cash receipts
	January	February	March
Last month's sales	$50,000	$25,000	$60,000
Current month's sales	$100,000	$240,000	$72,000
Total	$150,000	$265,000	$132,000

Discuss your observations about the way cash is collected if the company needs $150,000 per month for expenses.

Part 6 Material and Labor Variance

Actual Cost of Direct Materials	$225,000
Standard Cost of Direct Materials	$224,800
Actual Materials Used	30
Standard Materials Used	31
Actual Direct Labor Rate	$15.50
Standard Labor Rate	$15.00
Actual Hours Worked	45
Standard Hours Worked	40
	Amount	Favorable/ Unfavorable
Calculate Materials Variances:
Materials Price Variance	7,451.61	unfavorable
Materials Quantity Variance	7,251.61	favorable
Calculate Labor Variances:
Labor Rate Variance	$22.50	unfavorable
Labor Efficiency Variance	$75	unfavorable

Discuss your observations about the variances and ways to plan to improve any of the variances.