Survey of Accounting Packet 15 Survey of Accounting Packet 15 Semester Case - Cowboy Ice Cream, Inc. (cont.) Semester Case - Cowboy Ice Cream, Inc. Cowboy Ice Cream, Inc. (CIC) operates two divisions: (1) wholesale and (2) retail. Recall that the wholesale division orders and sells ice-cream to retailers. A third party stores the ice cream until it is sold and provides transportation of goods to customers. Currently, the retail division only operates an ice cream truck during the warmer months. CIC purchased a fully customized ice cream truck for $50,000. The truck has an estimated useful life of 5 years and a $5,000 salvage value. Identify the following costs as being direct or indirect for the individual products of CIC (sales to wholesale customers and sales to retail customers), both divisions of CIC, and for the company as a whole. As he prepares to operate both divisions of CIC for the first time, W.T. is unsure how to allocate the above costs. However, he does have estimates for the first month of planned operations of the ice cream truck (May). He plans to hire two part-time employees, who will each be guaranteed 20 hours per week, with the truck operating seven days a week. Including benefits and taxes, each employee will cost CIC $15 per hour. For May, the employees will work an estimated 180 total hours. For the truck, CIC orders ice cream from the manufacturer in bar form. Each bar costs $1.25. Based on previous summer operations, W.1. anticipates that 3,500 bars will be sold in May. He also anticipates that $100 will be spent on napkins and other paper supplies required to operate the truck. (a) Individual Products (b) Two divisions (c) Company as a whole Cost object Cost items 1. Wages of workers assigned to operate the ice cream truck. 2. Supplies, such as paper and pens, used by W.1. to complete administrative duties for the business. 3. W.T.'s salary to complete administrative duties for the business. 4. Ice cream sold to wholesale and retail customers. 5. Cost of paper goods to operate the ice cream truck. 6. Depreciation on the ice cream truck. 7. Storage and transportation fees for ice cream sold to wholesale and retail customers. 8. Gas expense to operate ice cream truck. The bars for retail sale will be stored with the wholesale inventory. Inventory needed for the retail division will be picked up daily using the ice cream truck. Storage space is billed based on average square feet used on a monthly basis. For May, W.T. anticipates that storage and delivery charges will be $2,500. Delivery represents 40% of the amount charged. The manufacturer provides delivery to the cold storage facility and only the wholesale division requires delivery to its customers. The ice cream bars (only sold by the retail division) occupy about 20% of the space rented at the cold storage facility. For May, W.T anticipates that $2,000 of gas will be required to operate the ice cream truck. In the summer months, W.T. anticipates he will work more hours and plans to pay himself a salary of $1,500 to manage the business. He anticipates he will work 180 hours in May, with 54 of those hours spent managing the retail division. W.T. also anticipates he will use $75 on administrative supplies during May. Finally, for May, he anticipates that the wholesale division will sell 4,000 units with an average manufacturing cost of $4.75 per unit. (a)Determine the estimated total cost and cost per unit for each division. Round all intermediate costs to the nearest whole cent. (b) Are there other costs W.I should likely take into consideration? Survey of Accounting Packet 15 Survey of Accounting Packet 15 + Cost Driver Total Cost to be Allocated Retail Amount Amount Allocated Allocated to the to Each Division Unit Wholesale Amount Amount Allocated Allocated to the to Each Division Unit Cost items 1. Wages of workers assigned to operate the ice cream truck. 2. Administrative Supplies 3. W.T.'s salary to P12-19 Hannah Ortega is considering expanding her business. She plans to hire a salesperson to cover trade shows. Because of compensation, travel expenses, and booth rental, fixed costs for a trade show are expected to be $7,500. The booth will be open 30 hours during the trade show. Ms. Ortega also plans to add a new product line, ProOffice, which will cost $150 per package. She will continue to sell an existing product, EZRecords, which costs $100 per package. Ms. Garcia believes that the salesperson will spend approximately 20 hours selling EZRecords and 10 hours marketing ProOffice. complete Required: (a)Determine the estimated total cost and cost per unit of each product, assuming that the salesperson is able to sell 80 units of EZRecords and 50 units of ProOffice. administrative duties for the business. 4. Ice cream sold to wholesale and retail customers. 5. Cost of paper goods to operate the ice cream truck. 6. Depreciation on the ice cream truck. 7a. Storage fees for ice cream sold to wholesale and retail customers. 7b. Transportation fees for ice cream sold to wholesale customers. 8. Gas expense to operate ice cream truck. (b)Determine the estimated total cost and cost per unit of each product, assuming that the salesperson is able to sell 200 units of EZRecords and 100 units of ProOffice. Total (c) Explain why the cost per unit figures calculated in Requirement a are different from the amounts calculated in Requirement b. Also explain how the differences in estimated cost per unit will affect pricing decisions