You have been hired as a consultant for Bravo

You have been hired as a consultant for Bravo

Subject: Business    / Accounting
Question
You have been hired as a consultant for Bravo Baking Company, who began operations in May of 2010 with the production and sales of specialty breads. The company has experienced a good market demand for its high protein, low carbohydrate product called “Hi-Lo.” Hi-Lo’s success has required that Bravo continue to make only this one product, however, Bravo’s customers, the local retailers, have been asking for more specialty breads from the company.

Using the information provided in Table A prepare the Cost of Goods Manufactured Schedule and the Cost of Goods Sold Schedule.

Bravo Baking identified the costs in Table B to determine its cost of one unit of product and its monthly operating costs. Using these costs compute the Breakeven units (round to 2 decimal places), Break-even sales dollars, Contribution Margin, Contribution Margin Ratio (%). If Bravo requires a profit of $5,000 how many units must it sell, and how much total Revenue? If Bravo actually sells 8,000 units, what is the margin of safety in Dollars, and percentage?

Bravo Baking Co has recently expanded its product line to include several other specialty breads the operating result for the last quarter are provided in Table C. Bravo wants to know the effect on Net income if it decides to discontinue the Fruit & Nuts Product. If Bravo eliminates Fruit & Nuts 50% of fixed cost can be avoided. Prepare an incremental analysis showing the net income effect of eliminating the Fruit & Nuts product. Using table C compute the net income for Bravo Baking after eliminating the Fruit & Nuts product.

Requirements:

1. Provide a detailed explanation of results from calculations, include schedules and calculations as exhibits.

2. What recommendation and advice would you make about Fruit & Nuts?

Table A

Bakers Wages

$32,000

Rent for executive offices

$36,000

sales Commissions

$10,000

Utilities used in the factory

$5,000

advertising costs

$12,000

Delivery Truck Costs

$25,000

Depreciation on bake ovens

$500

Interest of bank loan

$250

Beginning Inventory Materials

$10,000

Beginning Work in Process

$8,000

Ending Inventory Materials

$4,000

Inventory Purchases

$26,000

Ending Work in Process

$2,500

Other Overhead Costs

$1,200

Beginning Finished Goods Inventory

$7,500

Ending Finished Goods Inventory

$6,000

Rent of Factory

$7,500

Table B

Variable

Fixed

Material used in baking bread

$2.29

Saes Commissions

$0.12

Bakers Wages

$2.29

Rent for Executive Offices

$3,000.00

Factory Supervisor Salaries

$3,500.00

Utilities used in the Factory

$0.50

Advertising costs

$1,000.00

Delivery Truck Depreciation

$400.00

Depreciation of Bake Ovens

$0.07

Interest on Bank Loan

$500.00

Total Costs

$5.27

$8,400.00

Price Charged per unit

$7.77

Table C

Product

Hi-Lo

Whole Grain

Fruit & Nuts

Total

Revenues

$67,575

$31,800

$15,900

$115,275

Variable Product Costs

$27,030

$12,720

$6,360

$46,110

Variable Selling & Administrative Costs

$13,515

$6,360

$3,180

$23,055

Contibution Margin

$27,030

$12,720

$6,360

$46,110

Fixed Product Costs

$5,000

$5,000

$5,000

$15,000

Fixed Selling & Administrative Costs

$5,700

$2,850

$2,850

$11,400

Allocated Common Costs

$5,000

$2,500

$2,500

$10,000

Net Income

$11,330

$2,370

-$3,990

$9,710