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## 17 Jul Home>Business & Finance homework help>Accounting homework help?? Semester Case – Cowboy Ice Cream, Inc. CIC h

Semester Case – Cowboy Ice Cream, Inc.

CIC had budgeted its Wholesale Division sales at \$8 per unit. CIC planned to sell 4,000 units of ice cream to retail customers during May 2018. But, by lowering the sales price to \$7.50 per unit, the company was able to increase the actual number of units sold to 4,500.

Required

a. Determine the sales volume variance and indicate whether it is favorable (F) or unfavorable (U).

Master   Budget

4,000   Units

Flexible   Budget

4,500   Units

Volume   Variance

Sales (\$8 per unit)

b. Determine the flexible budget variance, and indicate whether it is favorable (F) or unfavorable (U).

Flexible   Budget

4,500   Units

Actual   Revenue

4,500   Units

Flexible   Budget Variance

Sales

c. Did lowering the price per unit increase profit? Explain.

W.T. is considering changing the pricing strategy for the Retail Division, butwonders about the potential effects on the firm’s net income if he changes the price per bar that the firm charges its customers. For June, he plans to only operate the truck for the standard 40 operating hours that he also used in May. This means that many of the operating costs are in effect fixed. The following basic data pertain to June 2018:

Variable costs (per bar):

Manufacturing and storage cost per ice   cream bar

\$1.34

Cost of paper goods per bar

0.03

Expected fixed costs   (total for the month):

Labor cost

\$2,700

Depreciation on truck

750

Gas for truck

2,000

573

Required (round all computations to the nearest whole dollar):

a. Prepare the pro forma income statement that would appears in the master budget if the firm expects to sell 5,000 bars in June at \$4.00 per bar.

b. A marketing consultant suggests to W.T. that the retail price may affect the number of bars the firm sells. According to the consultant’s analysis, if CIC charges customers \$3.75 per bar, the firm can sell 5,750 bars. Prepare a flexible budget using the consultant’s assumption.

c. The same consultant also suggests that if the firm raises its rate to \$4.25 per bar, the number of bars sold will decline to 4,500. Prepare a flexible budget using the new assumption.

Standard   Costs

a.

b.

c.

Master   Budget

\$4/bar

5,000   bars

Flexible   Budget

\$3.75/bar

5,750   bars

Flexible   Budget

\$4.25/bar

4,500   bars

Sales Revenue

Variable costs:

Mfg and storage

\$1.34/ea.

Paper goods

\$0.03/ea.

Contribution margin

Fixed costs:

Labor

\$2,700

Depreciation

\$750

Gas for truck

\$2,000

\$573

Net income

d. Evaluate the three possible outcomes you determined in Requirements a, b, and c and recommend a pricing strategy.

E15-5

Compute variances for the following items and indicate whether each variance is favorable (F) or unfavorable (U)

Item

Budget

Actual

Variance

Favorable (F) or Unfavorable (U)

Sales price

\$400

\$390

Sales   revenue

\$360,000

\$390,000

Cost of   goods sold

\$192,500

\$180,000

Material   purchases at 5,000 pounds

\$137,500

\$140,000

Materials   usage

\$90,000

\$89,000

Production   volume

950 units

900 units

Wages at   4,000 hours

\$30,000

\$29,350

Labor usage   at \$12 per hour

\$48,000

\$48,500

Research and   development expense

\$11,000

\$12,500

\$24,500

\$20,000

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