Table 1: Selected Financial Data (actual cost and revenue data for May 2014)

Cost Category	Behavior	May 2014
Sales		$766,667
Expenses:
Raw Materials	Variable	$327,934
Bakery labor	Mixed	$158,767
Administration Salaries	Fixed	$41,367
Supplies	Variable	$3,833
Freight & Shipping-In	Variable	$4,907
Freight & Shipping-Out	Variable	$64,707
Utilities Electricity	Variable	$9,813
Utilities Gas (ovens)	Variable	$3,067
Water	Variable	$920
Repairs & Maintenance	Fixed	$4,293
Rent expense	Fixed	$19,167
Telephone & Internet	Fixed	$2,300
Co-owners salary	Fixed	$25,300
Brokers commissions	Variable	$30,667
Total Expenses		$697,042
Operating Profit		$69,625
Income Tax		$22,280
Net operating income		$47,345
Unit volume		64,500
Average Operating Assets		$5,500,000
Minimum Rate of Return		8.00%

Notes to Selected Financial Data

Raw Materials: Includes main ingredients and flavor additives. Main ingredients are relatively higher cost items such as flour, sugar, eggs, nuts and fruit that appear on the package label. Flavor additives are relatively low-dollar cost items and a small part of the weight of the pie such as spices, dyes, salt, and certain oils that dont always appear on the package label.

Bakery labor: The cost amount consists of 22% supervisory salaries and taxes and the rest of hourly workers. Bakery labor workers are organized into four categories: production line (mixing, filling and baking), packaging, sanitation and warehouse (all included as part of cost of goods sold).

Administration Salaries: Includes taxes and benefits for the Vice President of Operations, the Controller, Human Resources Manager and two administrative support people.

Supplies: Includes supplies relating to production, packaging and decorating, sanitation and warehouse (think: adhesive, pastry bags, spatulas, scrapers, icing pens, gloves and so on)

Utilities Gas (ovens): Approximately 5% for administrative office and the remainder for the factory. The factory portion varies somewhat with production volume.

Water: All for the factory and varies proportionately with production volume.

Repairs & Maintenance: All for the factory.

Rent expense: The factory uses about 85% of the total square footage of the building and the remainder is for the administrative office.

Telephone & Internet: All for the administrative office. Co-owners salary: Linda Jackson and Taylor Johnson. Brokers commissions: Generally 4% of sales.

Income Tax: Average total tax rate is 32%.

5. Prepare a contribution margin Income Statement (assume 22% of bakery labor are fixed).

6. Based on a market survey, if Yummy Pie can put $15,000 promotional expense in a few major social medias, the expected sales volume can be increased by 10%. How this new strategy will impact the companys profit?

7. As labeling is considered the primary bottleneck, Yummy Pies is considering a new labeling machine with an estimated five-year life. Some variety packs require especially heavy labor to assemble the different flavors, snap on the plastic lid, and affix the labels in the right spot. The new machine would cost $500,000 and save an estimated $14,500 per month in labor cost. It is also expected to increase throughput by $13,000 revenues per month with roughly 20% markup on incremental production costs (excluding new investment).

Assess the opportunities in terms of increased profitability on annual basis. Should Yummy Pies adopt this strategy? Comment on the strategic, technical and risk factors that are relevant to this decision.

8. Explain what is operating leverage. How operating leverage is useful to understand business operation and make informed decisions? Give real world examples for high- and low-leverage companies. Calculate Yummy Pies operating leverage and comment.

need help with questions 5-8