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Using the information in Table MA.4, advise the marketing director on whether it would be more beneficial to make fruit and nut bars rather than
Using the information in Table MA.4, advise the marketing director on whether it would be more beneficial to make fruit and nut bars rather than buy them in from another company for £1.70 per bar. What other considerations need to be taken into account?
Table MA.1 Volume chocolate bars | Selling price per bar £ | Cocoa grams per bar | Sugar grams per bar | Milk millilitres per bar | |
Dark | 80,000 | 2.00 | 170 | 30 | 0 |
Milk | 140,000 | 1.80 | 130 | 40 | 30 |
White | 60,000 | 2.00 | 0 | 70 | 130 |
Raw material costs | £4 per kg | £2 per kg | £1 per litre |
Table MA.2 Indirect costs* | £k |
Rent | 18.2 |
Utilities | 13.8 |
Factory administration | 12.7 |
Marketing and sales | 47.4 |
Administrative salaries | 38.5 |
factory indirect costs are currently allocated on a blanket rate.
Packaging is estimated at £200 per 1,000 bars.
Direct labour costs are expected to be £10 per hour.
Table MA.3 Sales director’s volume and price assumptions | ||
Increase price | Decrease volume | |
Dark chocolate bars | 10% | 10% |
Milk chocolate bars | 5% | 5% |
White chocolate bars | No change | No change |
Table MA.4 Fruit and nut: raw material costs | ||
Per bar | Quantity | Cost |
Cocoa, sugar, and milk | Assume 50% of milk bar | |
Fruit | 50g per bar | £4 per kg |
Nut | 50g per bar | £8 per kg |
Direct labour, packaging, and factory overhead | Cost per bar: use same assumptions as other chocolate bars |
Sales revenue budget | |||||
Dark | milk | white | total | ||
Volume | 80000 | 140000 | 60000 | 280000 | |
selling price per bar | 2 | 1,8 | 2 | ||
total sales revenue | 160000 | 252000 | 120000 | 532000 | |
Raw materials | |||||
dark | milk | white | total | ||
volume | 80000 | 140000 | 60000 | 280000 | |
cocoa per bar | 0,17 | 0,13 | 0 | 0,3 | |
total cocoa used | 13600 | 18200 | 0 | 31800 | |
cost per kg | 4 | 4 | 4 | 4 | |
total cocoa cost | 54400 | 72800 | 0 | 127200 | |
volume | 80000 | 140000 | 60000 | 280000 | |
sugar per bar | 0,03 | 0,04 | 0,07 | 0,14 | |
total sugar used | 2400 | 5600 | 4200 | 12200 | |
cost per kg | 2 | 2 | 2 | 2 | |
total sugar cost | 4800 | 11200 | 8400 | 24400 | |
volume | 80000 | 140000 | 60000 | 280000 | |
milk per bar | 0 | 0,03 | 0,13 | 0,16 | |
total milk used | 0 | 4200 | 7800 | 12000 | |
cost per kg | 1 | 1 | 1 | 1 | |
total milk cost | 0 | 4200 | 7800 | 12000 | |
Packaging | |||||
dark | milk | white | total | ||
volume per thousand | 80 | 140 | 60 | 280 | |
cost | 200 | 200 | 200 | 200 | |
total packaging cost | 16000 | 28000 | 12000 | 56000 | |
Direct labour | |||||
dark | milk | white | total | ||
volume | 80000 | 140000 | 60000 | 280000 | |
hours (volume/20) | 4000 | 7000 | 3000 | 14000 | |
per hour cost | 10 | 10 | 10 | 10 | |
total direct labourcost | 40000 | 70000 | 30000 | 140000 | |
Income statement | |||||
sales revenue | 532000 | ||||
direct materials | |||||
cocoa | 127200 | ||||
sugar | 24400 | ||||
milk | 12000 | 163600 | |||
direct labour | 140000 | ||||
ackaging | 56000 | ||||
indirect costs | |||||
rent | 18200 | ||||
utilities | 13800 | ||||
factry administration | 12700 | ||||
marketing and sales | 47400 | ||||
administrative salaries | 38500 | 130600 | |||
Net income | 41800 | ||||
Management can assure themselves about the estimate by considering the market price and market survey. | |||||
b) | Analysis | ||||
dark | milk | white | total | ||
volume | 80000 | 140000 | 60000 | 280000 | |
weight | 0,285714286 | 0,5 | 0,214285714 | ||
sales revenue | 160000 | 252000 | 120000 | 532000 | |
Direct materials: | |||||
cocoa | 54400 | 72800 | 0 | 127200 | |
sugar | 4800 | 11200 | 8400 | 24400 | |
milk | 0 | 4200 | 7800 | 12000 | |
packaging | 16000 | 28000 | 12000 | 56000 | |
indirect costs | 37314,28571 | 65300 | 27985,71429 | 130600 | |
total costs | 112514,2857 | 181500 | 56185,71429 | 350200 | |
profit | 47485,71429 | 70500 | 63814,28571 | 181800 | |
net profit margin | 0,296785714 | 0,279761905 | 0,531785714 | 0,341729323 |
Current profitability: | |||
dark | milk | white | |
sales volume | 80000 | 140000 | 600002 |
selling price/unit | 2 | 1,8 | 2 |
Raw materials/unit | |||
cocoa 4/1000*170,*130,*0 | 0,68 | 0,52 | 0 |
sugar 2/1000*30,*40,*70 | 0,06 | 0,08 | 2,8 |
milk 0,1/1000*30,*130 | 0 | 0,03 | 0,13 |
R/Mat.Total | 0,74 | 0,63 | 2,93 |
direct labour 1/20*€10 | 0,5 | 0,5 | 0,5 |
total direct costs | 1,24 | 1,13 | 3,43 |
Contribution/unit | 0,76 | 0,67 | -1,43 |
total contribution sales*contn/unit | 60800 | 93800 | -85800 |
68800 |
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