Please solve the question Requirement 5 and 6

Introduction Thor Rasmussen was an accidental entrepreneur. Although his primary job was as a hair stylist, he also had a small side business in making and selling premium, hand-dipped chocolate truffles. His aunt had developed the original recipe for a family member with a severe soy allergy (most commercial chocolate has soy). Thor made several batches as Christmas gifts for friends in 2006. After a friend of a friend tried some of the special truffles, she approached him and asked if she could buy some. Startled, Thor replied "I don't know; let me get back to you!" Over the next several years, he continued to give truffles as presents and sell a few batches by word of mouth. The truffle business really started to grow when he became a hair stylist at "Paradise" and his clients began asking for his truffles. By the Christmas season of 2013, the demand for Thor's special truffles had grown so much that he really started thinking about running his sideline as a business. While he did not want to give up his career as a stylist, he did enjoy the creativity behind his truffles and the amazed reactions from people who tried them: "That's a lot of happiness in a little box!" Thor asked a client who was a cost accountant to help him analyze his business. His main concern was that he didn't know if he was charging enough for his truffles. He also confessed that he was not good at marketing, or numbers, or record keeping and had really no idea if his truffles were even profitable. As he put it, "I assume they're profitable because I have fewer credit card payments at the end of the month than I had to start with." Thor's truffles were a premium product with several distinguishing features. He used premium chocolate combined with bulk chocolate in both the filling and the coating layers. The inner truffle ("fondant") was hand-rolled and cooled extremely slowly, which gave an ultra-creamy texture, and the outer shell was hand-dipped, resulting in a thinner layer which then absorbed more of the flavoring from the inner truffle. The truffles were soy-free, used premium ingredients, and were completely alcohol free. 1 Thor worried that most people didn't see the huge difference in quality between his truffles and mainstream truffles until they actually tried them. "Zahller, K. A. (2017). Truffle in paradise: Job costing for a small business. Journal of Accounting Education, 40, 3242. Developing new flavors was Thor's favorite part of the business. There were eleven regular flavors, and each year Thor would create new varieties in October and test them by distributing samples at his salon, Paradise, listening very carefully to the comments and watching expressions closely. Usually, he would test both a dark and a milk chocolate version and then poll customers and co-workers for the winning combination. Last year's season was unusual because there were three new varieties tested and all three were retained. Thor's development record was good: of the 14 tested varieties, only three had failed. The learning curve for new varieties was fairly steep; the first three batches would be inconsistent after which they would be extremely consistent. Thor's records were very minimal, but he was able to produce a rough estimate of how many dozens he sold of each variety in the prior year (Table 1). Customers Thor's target market was women between the ages of 35 and 60 , or what he called "old money." He distinguished this group as being established in their careers, with discretionary funds, and who were tired of giving the "usual" gift of wine to friends and clients. As he sold only to individuals, the typical order was one to four dozen truffles, although there were three clients who bought in large orders for client gifts. Orders were picked up by customers at his salon, although he would personally deliver for large orders ( 12 dozen truffles). Every year, 8085% of his business would be repeat customers. Thor characterized new clients as "slow to develop:" they would try the truffles the first year, make last minute purchases of assortments the second year, but by the third year they tended to start placing large orders for gifts. Marketing was very minimal. Thor had traded truffles for the development of a website. While the website listed the varieties and had spectacular photos, it did not do a good job describing the varieties, explaining why Thor's truffles were so special, or actually allowing customers to place orders. Thor also printed business cards listing regular varieties, the price per dozen, and his contact information. One business card was included with each box of a dozen truffles and individual "sample" truffles were served on a card to salon customers. Approximately 20% of his total production was handed out as samples each season to attract customers. Other than word of mouth from enthusiastic customers, there were no other marketing or advertising campaigns. Sales were highly seasonal: Thor started making truffles in October and finished in January, although he was considering summer production to reach outdoor farmers' markets and craft fairs. Each dozen was priced at $18.50. All sales were made by cash or credit card. Credit card purchases were 85% of Thor's sales with bank fees of 3.65% for credit/debit cards. Because he came under the Colorado Cottage Food Act, Thor would be limited to $5000 in revenue per type of truffle and was also required to deliver the food to the customer personally, but was not required have a commercial kitchen or special licenses. He was also not required to collect sales tax. Process Truffles are a very labor-intensive process and require a great deal of cooling time between stages of the process. As a result, for everything but the Sea Salt Caramel (SSCar), Thor would usually make four batches of different varieties at a single time, so there was always one batch to be worked on while another was cooling, although he could make up to eight batches at a time. One batch produced four dozen truffles of the regular varieties of truffle. Four batches could be processed in about two to three days with the chilling and resting cycles. However, the actual labor time during the process would be about twelve hours. Long chilling and resting times were critical, as slower cooling times resulted in higher quality and better taste. Ideally, the external temperature should be less than 74 degrees Fahrenheit. If the weather was humid, the time could be increased considerably as it would take longer to properly incorporate the base ingredients. Fortunately, as Thor pointed out, humidity was rarely a problem in Colorado, which is why there were so many chocolate companies based in the state! For most varieties, the base truffle mix of chocolate, cream, and butter was identical, with flavorings usually added at the beginning of the process. The chocolate itself was a mix of bulk chocolate and either dark or milk premium chocolate. Once the mix was ready, it would be chilled overnight, individually hand rolled the next day, frozen again overnight, dipped (or "enrobed") in chocolate, marked with a pattern of colored decorative chocolate icing indicating the variety, 2 quick frozen, and stored in a commercial freezer. As Thor explained, there were visual cues if the truffles weren't mixed enough or if they were cooling too fast; he could correct the process immediately. and vaita had a wulegle of uhine icing. Sea Salt Caramel truffles were different. The process was much more difficult, and Thor was still struggling to perfect it. He could get four batches of SSCar truffles (the truffles used dark chocolate fondant) in thirteen hours, and each batch produced approximately 66 truffles. SSCar truffles were layered and sliced, not hand rolled, and there was an extra stage in the process to make the caramel. Making the caramel required an extra hour, including the time to blast chill the layer. Once the caramel layer was added to the chocolate truffle layer and chilled, the resulting mix was turned out on wax paper and sliced into standardized, square truffles. Making the caramel itself was very tricky - Thor had a five-degree window to cook the caramel mixture or it was ruined, and candy thermometers were largely useless due to the altitude. If the caramel had gone bad it was "super-apparent, super-fast" when he cut into the layered, chilled mixture. Unfortunately, that also meant the entire batch, including the chocolate layer, had to be discarded. Because SSCar truffles were distinctive (square instead of round), Thor did not use colored icing to distinguish the variety. Costs Currently, Thor was producing all his truffles in his own kitchen. Because this was not a space dedicated only to truffles, he was unable to adequately come up with overhead costs for utilities, rent, and insurance. In order to approximate these costs, and to give Thor an amount to use in evaluating any future moves to a rented commercial kitchen, it was arbitrarily decided to use an estimated charge of $0.12 per direct labor hour for these overhead costs. Thor's equipment was basic and consisted mainly of measuring cups and spoons, glass baking pans, spatulas, bowls, a scale, candy tools, a chef's knife, and a cutting board. He hand-mixed all his truffles for quality and the only appliances he used were the stove in his apartment and an upright commercial freezer loaned by a friend. The only identifiable consumable overhead costs he could come up with were the "thousands of little plastic storage boxes" he bought each year (estimated at $50 each season) and wax paper ( $12.50 for ten rolls each season, bought in bulk) used to store the truffles he produced prior to their packaging and sale or distribution as samples. Thor had used the Internet to research suppliers. He ordered his bulk chocolate three times a year from Supplier A and his premium, European chocolate twice a year from Supplier B. He timed his orders to take advantage of bulk discounts and regular specials. The tissue paper, decorative Chinese takeout boxes, and colored chocolate came from a large retail craft store; flavoring and oils from Supplier C; the Strawberry Balsamic vinegar came from a local specialty shop; and all other ingredients, as well as the plastic storage boxes and wax paper, came from the local "big box" retailer. During his production season, Thor went to the retailer at least daily (" "infinity plus one" trips), because he had limited storage for perishable ingredients, such as cream and butter. All supplies were paid for at time of purchase, using his credit card. The bulk of his direct materials were the three types of chocolate. Bulk chocolate was $160.00 for 50lb, including shipping. The premium chocolate was sold in five kilogram bars and was $115/ bar for dark and $95/ bar for milk chocolate, including shipping. Other ingredients were flavorings, strawberry balsamic vinegar, cream, butter, sugar, and sea salt (see Table 2 for individual costs, Table 3 for the required amount per batch, and Table 4 for measurement conversions). Each order (one dozen truffles) was packaged in a decorator Chinese takeout box, used one sheet of tissue paper, and included one business card. By far and away, the biggest part of the cost of the truffles was the labor expense. Thor wanted to know what his profitability would be, and what prices he should set, if he hired part-time employees to produce the truffles, while he continued to do marketing and product development. Local minimum wage was scheduled to increase to $10 per hour within the next year. Since he would not be providing benefits, he wanted to pay slightly more than minimum wage to encourage care and efficiency by his employees. Thor mainly wondered whether he was making any money. He needed to know the actual cost of each variety of his truffles and at what price he should set for each. He was reluctant to charge different prices for different varieties, although he did not rule out that possibility. He also wanted advice on whether he could afford to replace the bulk chocolate with 100% premium chocolate. b Ohe abbe of decorative icing marks 8 batcher of regular trumfles. There are mo dusa ow the wie of decorative icing per taifle or per Alaver. c Thor has no alea how many banes he acnally uses. The estiwate is a fond amount sent on de boxes ower the sewon. Bones are used for all varieties and are rewsed muny times as me truffer are sold and new buthes are produced. Table 3 Batch requirements by variety. Requirement \#5: Using the information from prior requirements, create a pro-forma segmented income statement to determine operating income by variety and Thor's net income after deducting his personal income tax rate. Requirement \#6: Analyze Thor's profitability per dozen for each variety. Provide both the gross margin per dozen and the gross margin percentage per dozen. In considering your results, what price(s) would you advise Thor to charge? Would you make any recommendation to alter his current sales mix? Introduction Thor Rasmussen was an accidental entrepreneur. Although his primary job was as a hair stylist, he also had a small side business in making and selling premium, hand-dipped chocolate truffles. His aunt had developed the original recipe for a family member with a severe soy allergy (most commercial chocolate has soy). Thor made several batches as Christmas gifts for friends in 2006. After a friend of a friend tried some of the special truffles, she approached him and asked if she could buy some. Startled, Thor replied "I don't know; let me get back to you!" Over the next several years, he continued to give truffles as presents and sell a few batches by word of mouth. The truffle business really started to grow when he became a hair stylist at "Paradise" and his clients began asking for his truffles. By the Christmas season of 2013, the demand for Thor's special truffles had grown so much that he really started thinking about running his sideline as a business. While he did not want to give up his career as a stylist, he did enjoy the creativity behind his truffles and the amazed reactions from people who tried them: "That's a lot of happiness in a little box!" Thor asked a client who was a cost accountant to help him analyze his business. His main concern was that he didn't know if he was charging enough for his truffles. He also confessed that he was not good at marketing, or numbers, or record keeping and had really no idea if his truffles were even profitable. As he put it, "I assume they're profitable because I have fewer credit card payments at the end of the month than I had to start with." Thor's truffles were a premium product with several distinguishing features. He used premium chocolate combined with bulk chocolate in both the filling and the coating layers. The inner truffle ("fondant") was hand-rolled and cooled extremely slowly, which gave an ultra-creamy texture, and the outer shell was hand-dipped, resulting in a thinner layer which then absorbed more of the flavoring from the inner truffle. The truffles were soy-free, used premium ingredients, and were completely alcohol free. 1 Thor worried that most people didn't see the huge difference in quality between his truffles and mainstream truffles until they actually tried them. "Zahller, K. A. (2017). Truffle in paradise: Job costing for a small business. Journal of Accounting Education, 40, 3242. Developing new flavors was Thor's favorite part of the business. There were eleven regular flavors, and each year Thor would create new varieties in October and test them by distributing samples at his salon, Paradise, listening very carefully to the comments and watching expressions closely. Usually, he would test both a dark and a milk chocolate version and then poll customers and co-workers for the winning combination. Last year's season was unusual because there were three new varieties tested and all three were retained. Thor's development record was good: of the 14 tested varieties, only three had failed. The learning curve for new varieties was fairly steep; the first three batches would be inconsistent after which they would be extremely consistent. Thor's records were very minimal, but he was able to produce a rough estimate of how many dozens he sold of each variety in the prior year (Table 1). Customers Thor's target market was women between the ages of 35 and 60 , or what he called "old money." He distinguished this group as being established in their careers, with discretionary funds, and who were tired of giving the "usual" gift of wine to friends and clients. As he sold only to individuals, the typical order was one to four dozen truffles, although there were three clients who bought in large orders for client gifts. Orders were picked up by customers at his salon, although he would personally deliver for large orders ( 12 dozen truffles). Every year, 8085% of his business would be repeat customers. Thor characterized new clients as "slow to develop:" they would try the truffles the first year, make last minute purchases of assortments the second year, but by the third year they tended to start placing large orders for gifts. Marketing was very minimal. Thor had traded truffles for the development of a website. While the website listed the varieties and had spectacular photos, it did not do a good job describing the varieties, explaining why Thor's truffles were so special, or actually allowing customers to place orders. Thor also printed business cards listing regular varieties, the price per dozen, and his contact information. One business card was included with each box of a dozen truffles and individual "sample" truffles were served on a card to salon customers. Approximately 20% of his total production was handed out as samples each season to attract customers. Other than word of mouth from enthusiastic customers, there were no other marketing or advertising campaigns. Sales were highly seasonal: Thor started making truffles in October and finished in January, although he was considering summer production to reach outdoor farmers' markets and craft fairs. Each dozen was priced at $18.50. All sales were made by cash or credit card. Credit card purchases were 85% of Thor's sales with bank fees of 3.65% for credit/debit cards. Because he came under the Colorado Cottage Food Act, Thor would be limited to $5000 in revenue per type of truffle and was also required to deliver the food to the customer personally, but was not required have a commercial kitchen or special licenses. He was also not required to collect sales tax. Process Truffles are a very labor-intensive process and require a great deal of cooling time between stages of the process. As a result, for everything but the Sea Salt Caramel (SSCar), Thor would usually make four batches of different varieties at a single time, so there was always one batch to be worked on while another was cooling, although he could make up to eight batches at a time. One batch produced four dozen truffles of the regular varieties of truffle. Four batches could be processed in about two to three days with the chilling and resting cycles. However, the actual labor time during the process would be about twelve hours. Long chilling and resting times were critical, as slower cooling times resulted in higher quality and better taste. Ideally, the external temperature should be less than 74 degrees Fahrenheit. If the weather was humid, the time could be increased considerably as it would take longer to properly incorporate the base ingredients. Fortunately, as Thor pointed out, humidity was rarely a problem in Colorado, which is why there were so many chocolate companies based in the state! For most varieties, the base truffle mix of chocolate, cream, and butter was identical, with flavorings usually added at the beginning of the process. The chocolate itself was a mix of bulk chocolate and either dark or milk premium chocolate. Once the mix was ready, it would be chilled overnight, individually hand rolled the next day, frozen again overnight, dipped (or "enrobed") in chocolate, marked with a pattern of colored decorative chocolate icing indicating the variety, 2 quick frozen, and stored in a commercial freezer. As Thor explained, there were visual cues if the truffles weren't mixed enough or if they were cooling too fast; he could correct the process immediately. and vaita had a wulegle of uhine icing. Sea Salt Caramel truffles were different. The process was much more difficult, and Thor was still struggling to perfect it. He could get four batches of SSCar truffles (the truffles used dark chocolate fondant) in thirteen hours, and each batch produced approximately 66 truffles. SSCar truffles were layered and sliced, not hand rolled, and there was an extra stage in the process to make the caramel. Making the caramel required an extra hour, including the time to blast chill the layer. Once the caramel layer was added to the chocolate truffle layer and chilled, the resulting mix was turned out on wax paper and sliced into standardized, square truffles. Making the caramel itself was very tricky - Thor had a five-degree window to cook the caramel mixture or it was ruined, and candy thermometers were largely useless due to the altitude. If the caramel had gone bad it was "super-apparent, super-fast" when he cut into the layered, chilled mixture. Unfortunately, that also meant the entire batch, including the chocolate layer, had to be discarded. Because SSCar truffles were distinctive (square instead of round), Thor did not use colored icing to distinguish the variety. Costs Currently, Thor was producing all his truffles in his own kitchen. Because this was not a space dedicated only to truffles, he was unable to adequately come up with overhead costs for utilities, rent, and insurance. In order to approximate these costs, and to give Thor an amount to use in evaluating any future moves to a rented commercial kitchen, it was arbitrarily decided to use an estimated charge of $0.12 per direct labor hour for these overhead costs. Thor's equipment was basic and consisted mainly of measuring cups and spoons, glass baking pans, spatulas, bowls, a scale, candy tools, a chef's knife, and a cutting board. He hand-mixed all his truffles for quality and the only appliances he used were the stove in his apartment and an upright commercial freezer loaned by a friend. The only identifiable consumable overhead costs he could come up with were the "thousands of little plastic storage boxes" he bought each year (estimated at $50 each season) and wax paper ( $12.50 for ten rolls each season, bought in bulk) used to store the truffles he produced prior to their packaging and sale or distribution as samples. Thor had used the Internet to research suppliers. He ordered his bulk chocolate three times a year from Supplier A and his premium, European chocolate twice a year from Supplier B. He timed his orders to take advantage of bulk discounts and regular specials. The tissue paper, decorative Chinese takeout boxes, and colored chocolate came from a large retail craft store; flavoring and oils from Supplier C; the Strawberry Balsamic vinegar came from a local specialty shop; and all other ingredients, as well as the plastic storage boxes and wax paper, came from the local "big box" retailer. During his production season, Thor went to the retailer at least daily (" "infinity plus one" trips), because he had limited storage for perishable ingredients, such as cream and butter. All supplies were paid for at time of purchase, using his credit card. The bulk of his direct materials were the three types of chocolate. Bulk chocolate was $160.00 for 50lb, including shipping. The premium chocolate was sold in five kilogram bars and was $115/ bar for dark and $95/ bar for milk chocolate, including shipping. Other ingredients were flavorings, strawberry balsamic vinegar, cream, butter, sugar, and sea salt (see Table 2 for individual costs, Table 3 for the required amount per batch, and Table 4 for measurement conversions). Each order (one dozen truffles) was packaged in a decorator Chinese takeout box, used one sheet of tissue paper, and included one business card. By far and away, the biggest part of the cost of the truffles was the labor expense. Thor wanted to know what his profitability would be, and what prices he should set, if he hired part-time employees to produce the truffles, while he continued to do marketing and product development. Local minimum wage was scheduled to increase to $10 per hour within the next year. Since he would not be providing benefits, he wanted to pay slightly more than minimum wage to encourage care and efficiency by his employees. Thor mainly wondered whether he was making any money. He needed to know the actual cost of each variety of his truffles and at what price he should set for each. He was reluctant to charge different prices for different varieties, although he did not rule out that possibility. He also wanted advice on whether he could afford to replace the bulk chocolate with 100% premium chocolate. b Ohe abbe of decorative icing marks 8 batcher of regular trumfles. There are mo dusa ow the wie of decorative icing per taifle or per Alaver. c Thor has no alea how many banes he acnally uses. The estiwate is a fond amount sent on de boxes ower the sewon. Bones are used for all varieties and are rewsed muny times as me truffer are sold and new buthes are produced. Table 3 Batch requirements by variety. Requirement \#5: Using the information from prior requirements, create a pro-forma segmented income statement to determine operating income by variety and Thor's net income after deducting his personal income tax rate. Requirement \#6: Analyze Thor's profitability per dozen for each variety. Provide both the gross margin per dozen and the gross margin percentage per dozen. In considering your results, what price(s) would you advise Thor to charge? Would you make any recommendation to alter his current sales mix