Small Stuff, Inc. To earn a little bit of money during your MBA studies, you have decided to work as a part-time employee for Small Stuff Inc . The business model of this company is pretty simple: it produces and sells small stuff. Your work consists of assembling parts into finished stuff and selling it to fellow MBA students. The financial reporting period is a work week (Monday-Friday). In other words, books are closed every Friday night. Because of industry practices, your salary is 50% of the profit generated by Thursday night of any given week, given that this profit is at least $15 (i.e., you receive no salary if your profit is below $15). Your revenue and cost structure are as follows: Price per unit $7 Direct variable cost per unit $2 Fixed overhead* $12 * Fixed overhead refers to the weekly rent of a small machine that has the capacity to produce a maximum of 8 units of stuff per week. For the current week, your production & sales budget had been set at 4 units. On Thursday evening, you have already sold 6 units. That same evening, you meet with Small Stuff's marketing manager and accountant to collect your salary. Required: You compute the profit generated including the whole amount of fixed overhead (i.e., $12). You think: "Great - I'll get a salary this week!" 1. Calculate how much profit you think you have earned for Small Stuff until Thursday. 2. Calculate the break-even point (in terms of units during a given week). Apply the method that you have used in 1 (i.e., including the whole amount of fixed overhead in the profit computation). 3. Also, calculate the profit that you would have earned if you had sold only 2 or only 4 units. Again, apply the method that you have used in 1. The marketing manager reacts with disbelief that you have achieved to exceed your sales plan (the only person who has ever done so is him, and that was by only 1 unit!). Worse, the accountant does not agree with your profit calculation. According to his report, units are valued at their full cost and profits are just the sum of the profits per unit. Therefore, you have earned only $12 of profit. 4. How can this be? Show how the accountant calculated this profit number of $12. 5. Draw a small diagram of the accountant's cost system and compute the allocation rate. 6. Use the process that you have identified in 5 to calculate the reported profits for 2 and 4 units, respectively.