Choose an item that you would like to manufacture. You do not actually need to m
ID: 2473407 • Letter: C
Question
Choose an item that you would like to manufacture. You do not actually need to manufacture something, but will proceed through the assignment as if you were planning on manufacturing the item you have selected. The product should require materials and labor and be something that you are familiar with in process from start to finish. The product must be useful and marketable. You can choose something as simple as making chocolate chip cookies, a type of craft, or something more complicated. Consider production as if you were making the product from beginning to end, and not as if using a kit. Perform the following steps: 1.Choose a product to manufacture and describe the manufacturing process. 2.Prepare the following budgets for 1 quarter, broken down monthly, regarding your chosen item: •estimated sales budget •estimated direct materials budget •estimated direct labors budget •estimated manufacturing overhead budget •estimated selling and administrative expenses •estimated income statement. 3.Classify all manufacturing costs and selling and administrative expenses as either variable or fixed. 4.Prepare a contribution margin income statement separating all variable and fixed costs into their own categories. 5.Determine the breakeven point in units and dollars. Also determine the number of units and dollars that need to be sold to make a target profit of $5,000 a month. 6.Identify what types of trends you should be aware of in the industry and who the primary competitors are. 7.Answer the following question: If you had to improve the bottom line, what would you do and what concerns would you have going forward? 8.Choose a piece of equipment that you might consider purchasing to increase production of your item and address the following questions: What types of capital budgeting factors would you look at when deciding whether to do this? What would be the relevant costs that you would consider in this decision? Your final project should be in the form of a paper, using Microsoft Word, that addresses each of these different areas. Steps #1, 6, 7 and 8 will be in paragraph form and Steps #2, 3, 4 and 5 will involve numerical calculations that should be put into the form of a table in proper format and included as part of the paper.
Explanation / Answer
1
Chocolate Chip Cookies
Preparation of Chocolate Chip Cookies requires various Ingredients which include Butter, Sugar, Eggs, Essence extract, All Purpose Flour, Baking Soda, Water, Salt, Chocolate Chips, Chopped Walnuts.
Essence extract determines the flavour of the cookie. Our Cookie has a Vanilla flavour derived from the Vanilla essence.
Directions to Cook.
Pre heat the Oven and mix all the ingrediets together. Make the dough into the size of your convenience and bake for the same for 30 Min. Open the Oven after 30 Min and the Cooies are ready.
2
Manufacturing of Chocolate Chip Cookies.
Raw Material = $3 ( This includes all the Ingredients)
Labor = $3
Over Heads = $2 ( Power, Oven maintenance etc.,)
Fixed Costs = $5000 (Cost of Oven)
Selling and Distribution Overheads = 3 ( This include Advertising, Packing and transport charges)
Selling Price = $14
3
Contribution Margin statement
Selling Price
14
Raw Material
-3
Labour
-3
Over Heads
-2
Selling and Distribution Over heads
-3
Contribution Margin
3
4
Break Even Point
In Units = 1,667 Units
In Dollars = 23,338
5)
Target Profit of $5000
In Units = 3,334 Units
In Dollars = 46,676 Dollars
6)
Balanced Score Card
Financial perspective
Contribution of $3 per Cookie is a motivating factor.
Fixed cost is only $5000. It is easy to recover and once the cost is recovered, the firm will turn to huge profits.
Internal business perspective
This is a capital intensive firm and less controls are required for efficiency.
The main bottleneck is the Fixed Asset i.e., Oven
Customer perspective
Cookie is an item that is preferred by all age groups.
The customer wants to consume all the through the year
Two learning and growth perspective
The experience is the deciding factor in the learning
The firm is not labor intensive, so the employee turnover has less impact.
7)
The Cookie market has a customer base of all age groups and throughout the year.
Selling Price
14
Raw Material
-3
Labour
-3
Over Heads
-2
Selling and Distribution Over heads
-3
Contribution Margin
3