Task 1

Michelle and Vishayla need to know the cost per cake so they can be sure they are charging enough for each cake. They also need this to calculate the cost of goods sold. They feel that direct labor hour is the best cost driver for allocating manufacturing overhead. They pay their wage employees $12.00 per hour. Due to the type of production that they have, they believe job order costing is the best costing system. Here is the estimated data for 2020:

Type of cake	Expected Annual sales	Selling Price per cake	Raw Ingredient (Direct Materials)cost per cake	Direct Labor Hour per cake
1 tier wedding cake	300	$200	$40	6
2 tier wedding cake	400	$400	$50	8
3 tier wedding cake	100	$600	$75	10
Large sheet cake	450	$120	$25	3
Medium sheet cake	600	$90	$15	2
Small sheet cake	750	$75	$10	2

Expense	Estimated annual amount
Total direct materials	$67,250
Total direct labor	$120,600
Total factory overhead	$47,900
Selling Cost	$17,500
Administrative Costs	$108,700
Total Costs	$361,950
Variable versus Fixed Costs
Total Variable Costs	$211,950
Total Fixed Costs	$150,000
Total costs	$361,950

Requirements:

1) Calculate the cost per cake

2) Create a budgeted Traditional Income Statement and a Contribution Income Statement

3) Calculate the breakeven point in dollars

4) Calculate a target profit in dollars for a profit of $125,000.

Task 2

They believe it will cost them $250,000 to purchase the land near Fort Lee and to build a bakery and storefront. Your task is:

1) Calculate Return on Investment if the expected increase in net income, due to opening the new location near Ft. Lee, is $35,000.

2) Calculate Asset Turnover Rate and Margin if the expected sales increased to $450,000

3) Calculate Residual Income if the required rate of return is 15%.