Questions:

Part 1:  (30 points)

1. A) Smart Cookie wants to understand their basic starting financial data. What is their monthly fixed cost, variable cost per box, and contribution margin per box? Show your calculations for each.

2. B) Prepare a one-month Contribution Margin Income Statement for the company using the given financial data at their normal factory volume. Include line items for each type of cost as well as subtotals for the variable and fixed costs.

3. C) What is the break-even point in units? (Show your calculations.)

4. D) What is the break-even point in sales dollars? (Show your calculations.)

5. E) Using a one-month Contribution Margin Income Statement, verify that your calculated break-even volume results in Operating Income of Zero. (Prepare the entire Contribution Margin statement at the break-even level.)

Part 2:  (24 points)

Smart is thinking of increasing sales by offering nutrient-fortified sugar cookies. The investment needed for changing between flavors in their manufacturing process would increase fixed overhead costs by $2,000 per month. The variable materials cost (only variable material costs – not all variable costs) would increase by $0.20 per box. Market research indicates that sugar cookies are current popular for decorating, and estimates that the sugar cookies would still sell for $4 per box, and volume would increase 20%.

1. A) Prepare a revised monthly Contribution Margin Income Statement to include the revenues, detailed costs and income if Smart chooses to manufacture and sell sugar cookies instead of their normal chocolate chip cookies.

2. B) What is the new break-even point in units for the sugar cookies?

3. C) What is the new break-even point in sales dollars for the sugar cookies?

DETAILED ASSIGNMENT

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