Cookie Company
In this segment of our continuing “cookie company” case, you will classify the costs of the business as variable, fixed, or mixed; use the high-low method to evaluate utility costs; and prepare a contribution margin income statement.
1.Review your cookie recipe and the overhead costs you identified in Chapter 16, and classify the costs as variable, fixed, or mixed costs.
2. Obtain your electric bills for three months, and use the high-low method’s cost formula to determine the monthly cost of electricity—that is, monthly electric cost =variable rate per kilowatt-hour + monthly fixed cost. If you do not receive an electric bill, use the following information:
|
Month
|
Kilowatt-Hours Used
|
Electric Costs
|
|
August
|
1,439
|
$202
|
|
September
|
1,866
|
230
|
|
October
|
1,146
|
158
|
3. Prepare a daily contribution margin income statement based on the following assumptions:
Cookie Company makes only one kind of cookie and sells it for $1.00 per unit. The company projects sales of 500 units per day. Projected daily costs are as follows:
|
Type of Cost
|
Manufacturing
|
Nonmanufacturing
|
|
Variable
|
$100
|
$50
|
|
Non variable
|
120
|
60
|
a. What is the contribution margin ratio?
b. What volume, in terms of units, must the company sell to break even each day?