Operating Expenses Budget

Product A
I
salary expense
sales commission(9% of sales)
rent expense
insuranse expense
miscellaneous expenses
total

3500
9000
2000
300
1400
16200

II
3500
10125
2000
300
1075
17000

III
3500
11475
2000
300
225
17500

II
4500
112500
90000
17000
7000

III
5100
127500
102000
17500
8000

IV
3500
11600
2000
300
600
18000

Prduct A
price
cost

25
20
I

budgeted sales in units

Sales revenue
COGS
Operating expenses
Oeprating income

4000
100000
80000
16200
3800

IV
total
5800
19400
145000
485000
116000
388000
18000
68700
11000
29800

Static Budget
A
B
units
19400
22500
Sales revenue
485000
630000
COGS
388000
562500
Gross Profit
97000
67500
Opertaing expenses
68700
45140
Operating income
28300
22360

Total
41900
1115000
950500
164500
113840
50660

enses Budget
Product B
salary expense
sales commission(4% of sales)
rent expense
insuranse expense
miscellaneous expenses
total

3500
6384
2000
300
816
13000

3500
5600
2000
300
120
11520

3500
6720
2000
300
0
12520

3500
6496
2000
300
211
12507

II
5000
140000
125000
11520
3480

III
6000
168000
150000
12520
5480

IV
5800
162400
145000
8100
12507

Product B
price
cost

28
25

I
budgeted sales in units
Sales revenue
COGS
Operating expenses
Oeprating income

5700
159600
142500
13000
4100

Total
22500
630000
562500
45140
25567

Product A

Sales
Variable

per unit
$25.00
$13.00

I quarter
N=

Sales

4500
$112,500.00

Variable exp.

$58,500.00

CM

$54,000.00

Fixed exp.

$50,000.00

Op.Income

$4,000.00

Product B

Sales
Variable

per unit
$28.00
$18.00

I quarter
N=

Sales

5300
$148,400.00

Variable exp.

$95,400.00

CM

$53,000.00

Fixed exp.

$50,000.00

Op.Income

$3,000.00

II quarter

III quarter

IV quarter

4800

5000

6000

$120,000.00

$125,000.00

$150,000.00

$62,400.00

$65,000.00

$78,000.00

$57,600.00

$60,000.00

$72,000.00

$50,000.00

$50,000.00

$50,000.00

$7,600.00

$10,000.00

$22,000.00

II quarter

III quarter

IV quarter

5500

5800

6000

$154,000.00

$162,400.00

$168,000.00

$99,000.00

$104,400.00

$108,000.00

$55,000.00

$58,000.00

$60,000.00

$50,000.00

$50,000.00

$50,000.00

$5,000.00

$8,000.00

$10,000.00

20300
$507,500.00

22600
$632,800.00

CVP Anal
Shampoo A

Price per unit

Variable cost per unit
Fixed expense
Contribution Margin
Contribution Margin %

$25.00
$13.00
$50,000.00

$12.00
0.48

:
Sales in units
Sales in Dollars

4166.67
$104,166.67

2 5
Product A

Product B

Sales price per

$25.00

$28.00

Variable exp.

$13.00

$18.00

CM per unit

$12.00

$10.00

$60.00

$30.00

Sales mix
CM

Weighted average cm
Sales in total units

$11.25
4444.44

Breakeven sales of Shampoo A

2777.78

Breakeven sales of Shampoo B

1666.67

CVP Analysis
Shampoo B

Price per unit

Variable cost per unit
Fixed expense

$28.00
$18.00
$50,000.00

Contribution Margin
Contribution Margin %

$10.00
0.36

:
Sales in units
Sales in Dollars

5000
$140,000.00

5 Shampoo A- 3 Shampoo B

Our overall breakeven point in sales dollars will be :

$69,444.44
$46,666.67
Total Revenue

$116,111.11

Cost of Goods sold

Product A
N of units
Price per unit

20300
$25

Cost per unit

Variable cost per unit
Fixed cost per unit

$23
$13
$10 (Total fixed cost/Quantiy=200000/20300)

Direct materials per unit

MOH per unit

$8
$4

Direct labour
Direct materials
MOH

$412,600
$162,400
$81,200

Total variable costs

$263,900

Raw materials inventory

Beginning inventory
Direct materials+freight in
Direct materials available for use
Ending inventory
Direct materials used

0
$162,400
$162,400
$64,000 (~12% of sales)
$98,400

Work in process inventory

Beginning inventory
0
Direct materials used
$98,400
Direct labour
$412,600
MOH
$81,200
Total manufactured costs incured
$592,200
Total manufacturing costs to account for
$592,200
Ending inventory
$37,400 (~7% of sales)
Cost of goods manufactured
$554,800
Finished goods inventory
Beginning inventory
Cost of goods manufactured
Cost of goods available for sale

0
$554,800
$554,800

Ending inventory
COGS

$90,900 (~14 % of sales)

$463,900

ods sold
Product B
N of units
Price per unit

22600
$28

Cost per unit

Variable cost per unit
Fixed cost per unit

$23
$18
$8 (Total fixed cost/Quantiy=200000/22600)

Direct materials per unit

MOH per unit

$8
$4

Direct labour
Direct materials
MOH

$412,600
$180,800
$90,400

Total variable costs

$406,800

Raw materials inventory

Beginning inventory
Direct materials+freight in
Direct materials available for use
Ending inventory
Direct materials used

0
$180,800
$180,800
$28,000 (~4.5% of sales)
$152,800

Work in process inventory

Beginning inventory
0
Direct materials used $152,800
Direct labour
$412,600
MOH
$90,400
Total manufactured costs incured
$655,800
Total manufacturing costs to account for
$655,800
Ending inventory
$15,000 (~3% of sales)
Cost of goods manufactured
$640,800
Finished goods inventory
Beginning inventory
Cost of goods manufactured
Cost of goods available for sale

0
$640,800
$640,800

Ending inventory
COGS

$34,000 (~5.5 % of sales)

$606,800

Price per unit

Variable cost per unit
Fixed costs
number of units

25
13
412600
20300

total variable costs

total fixed costs

670700
825200

mixed costs=(13+18)x+825200
x - number of units
# of units
30000
32000
34000
36000
38000
40000
42000
44000
46000
48000
50000

28
18
412600
22600

42900 (30000-50000 relevant range)

3098900

Total Costs
1755200
1817200
1879200
1941200
2003200
2065200
2127200
2189200
2251200
2313200
2375200

Variable costs
930000
992000
1054000
1116000
1178000
1240000
1302000
1364000
1426000
1488000
1550000

Regression analysis
SUMMARY OUTPUT
Regression Statistics
Multiple R
R Square
Adjusted R Square
Standard Error
Observations

1
1
1
0
10

ANOVA
df
Regression
Residual

SS
1
8

###
0

MS
###
0

Fixed costs
825200
825200
825200
825200
825200
825200
825200
825200
825200
825200
825200

Total

Intercept

###

Coefficients
Standard Error t Stat Lower 95% Upper 95%
400000
0
65535 400000
400000
30000
53
0
65535
53
53

00 relevant range)

Lower 95,0%
400000
53

Upper 95,0%
400000
53

Right now we are considering the foloowing projects.These projects will be depreciated using straight l

Project I
Year 0
Year 1
Year 2
Year 3

Cash Flow
$(75,000.00)
$19,000.00
$48,000.00
$12,000.00

Rate

NPV

10%

$(8,220.07) < 0

Project II
Cash Flow
Year 0
Year 1
Year 2
Year 3
Rate

NPV

$1,132.32

So we will reject Project I , Project III and acce

be depreciated using straight line method to a zero book value over the life of the project.

we want to consider which project to accept

Project II

Project III

Cash Flow
$(70,000.00)
$10,000.00
$16,000.00
$72,000.00
13%

>0

Year 0
Year 1
Year 2
Year 3

Cash Flow
$(77,450.00)
$42,650.00
$19,600.00
$22,750.00

Rate

NPV

, Project III and accept Project II

12%

$(6,742.54) < 0

to accept

We are considering an investment which will cost 120 000$.This investmen

Cash inflows
Year
Year
Year
Year
Year
Year
Investment
Rate

Discounted Payback

1
2
3
4
5
6

$0.00
$0.00
$40,000.00
$55,000.00
$75,000.00
$80,000.00
$120,000.00
10%

5.13

Present Value
$0.00
$0.00
$30,052.59
$37,565.74
$46,569.10
$45,157.91

0 000$.This investment produces no cash flows for the first two years.

Outsourcing Decis

We are deciding whether to make the tubes for our shampoos in-house, or whether to outsource them t
VST company offers ro sell tubes for 2,5$

Our cost to produce (both Product A & Product B) 429

DM
DL
VMOH
FMOH
Total Cost
# of Tubes
Cost per Tube

$30,000.00
$20,000.00
$8,000.00
$60,000.00
$118,000.00
42900
$2.75

We will outsource tubes because cost per unit to make the tube is 0.25$ higher than the cost of buying

ing Decision

hether to outsource them to VST Company,which specializes in producing tubes.

o sell tubes for 2,5$

Product A & Product B) 42900 tubes is :

er than the cost of buying it from VST

In the NPV analysis we considered three projects. The second one was producing new shampoo, which protects hair from
Initial cash outflow is
$70 000
MOH for this production is 20% of initial cost, which is $14 000

ABC costing
Step 1:
The three priamry activities are:

Step 2:
Total indirect costs of each activity are:

Step 3:
Cost drivers for each activity are:

Step 4:
Total quantity of each allocation base is:

Step 5:
Cost allocation rates are:

Mixing
Filling
Testing

Mixing
Filling
Testing

Mixing:
Filling:
Testing:

Mixing:
Filling:
Testing:

Mixing:
Filling:
Testing:

$2,310
$10,640
$1,050

Number of batches
MH
Numebr of samples

2 batches
42 MH
3 samles

$1,155 per batch

$253.33 per MH
$350 per sample

Cost allocation rate=Estimated total idirect costs of activity / Estimated total quantity of cost allocation base

Step 6:
Actual quantity of each allocation base:

Step 7:
Allocating costs:

Mixing:
Filling:
Testing:

Mixing:
Filling:
Testing:

2 batches
41 MH
4 samples

$2,310
$10,386.67
$1,400

Overahead allocation=Actual quantity of cost allocation base used x Cost allocation rate for the activity
Total MOH allocated:

$14,097

Summary
Step 1

Activity

Mixing
Filling
Testing

Step 2

Step 3

Cost
Estimated
allocation
costs
base
# of
batches
$10,640 # of MH
# of
$1,050
samples
$2,310

Step 4

Step 5

Estimated
Cost
quantity of
allocation
allocation
rate
abse

Step 6
Actual
quantity of
allocation
base

Step 7

Allocated
activty cost

$1,155

$2,310

42

$253.33

41

$10,386.67

$350

$1,400
$14,097

shampoo, which protects hair from getting grey.

cost allocation base

e for the activity