Big Al's Pizza Inc.

Part One: Section A

A.

Allocation of Overhead

B.
Annual
Predetermined Overhead Rate = Total Overhead Costs / Production
Estimated yearly overhead costs
Expected production (units)
Predetermined Overhead Rate
#DIV/0!
Costs for January
Actual Volume
Direct Material
Direct Labor
Applied Manufacturing overhead
#DIV/0!
Total Manufacturing Costs
#DIV/0!
Cost per pizza
#DIV/0!
C.
Overhead Over or Under Applied in January
Actual Overhead
Applied Overhead
Over / Under Applied

#DIV/0!
#DIV/0! Under (Over) Applied

Annual

Direct Labor Hours

#DIV/0!

#DIV/0!

Big Al's Pizza Inc.

Part One: Section B
Veggie Pizza Information
Direct Material Costs per Pizza
Meat

Veggie

Dough Shells
Sauce Package
Cheese Package
Meat Package
Veggie Package
Assembly Package
$0.00
Direct Labor Costs per Veggie Pizza
Rate
Rates
Number of Employees
Pizzas per hour
Cost per Pizza
#DIV/0!

$0.00

Fringe

#DIV/0!

Total

#DIV/0!

Manufacturing Overhead
Production of veggie pizzas will increase overhead to
Selling and Administrative Costs (Monthly)
Administrative Salaries
Salaries of Sales Staff
Product Promotion and Advertising
Rental of Office Space for Admin. & Sales Staff
Utilities, Insurance, Etc.
Lease of Office Furniture and Equipment
Total Selling and Administrative Costs

$0

$0 Total Period Costs

A.

Allocation of Overhead With Many Products

B.

Cost Driver for Allocation

C.
Direct Labor as the Cost Driver
Predetermined Overhead Rate = Total Overhead Costs / Amount of Cost Driver Units
Overhead Costs
(with the 5% increase)
Estimated Direct labor hours
Predetermined Overhead Rate =
#DIV/0! Per direct labor hour

D.

Total Manufacturing Costs (Cost Driver - DL Hours)

Meat

Actual Volume
Direct Labor Hours
Direct Material
Direct Labor
Applied Overhead
Total Manufacturing Costs
Cost per pIzza

#DIV/0!
#DIV/0!
#DIV/0!

Actual Overhead
Applied Overhead
Over(under) applied overhead

#DIV/0!
#DIV/0!

Veggie

#DIV/0! Direct Labor Hours

#DIV/0!
#DIV/0!

E.

Cost of Goods Manufactured

Beginning Inventory WIP
Raw Material Used
Direct labor costs
Actual Overhead
Ending Inventory WIP
Cost of Goods Manufactured

F.

G.

Cost of Goods Sold

Beginning Inventory Finished Goods
Cost of Goods Manufactured
Ending Inventory Finished Goods
Cost of Goods Sold
Net Income
Sales: Meat Pizzas
Sales: Veggie Pizzas
Total Sales
Cost of Goods Sold
Selling & Administrative expense
Operating Income

H.
Year 3 and Production Limits
Define the Problem =

Identify Objectives =

Analyze Options =

$0

$0
$0

0
$0
$0

Big Al's Pizza Inc.

Part One: Section C
A.

B.

Categorized Overhead Costs from Year 1

Activity
Material delivery & handling
Assembly of pizzas
Packaging
Storage of materials
Quality inspections

Overhead Category
Batch/Product
Unit
Unit
Product/Facility
Product/Unit

Predetermined Overhead Rate for each Activity

Activity
Material delivery & handling
Assembly of pizzas
Packaging
Storage of materials
Quality inspections
Total

Year 2 Overhead Costs (Estimated)

Dollar
Dollar
Cost Driver Cost Driver Cost Driver
Overhead
Yearly
Meat
Veggie
Total
$0
0
$0
0
$0
0
$0
0
$0
0
$0
$0

POR for material delivery & handling

#DIV/0! Per Material Shipment

POR for assembly of pizzas

#DIV/0! Per Direct Labor Hour

POR for packaging

#DIV/0! Per Pizza

POR for storage of materials

#DIV/0! Per Cubic Foot of Refrigerator space

POR for quality inspections

#DIV/0! Per Inspection

C.

Allocate Overhead for each Cost Driver

Meat
#DIV/0!
#DIV/0!
#DIV/0!
#DIV/0!
#DIV/0!
#DIV/0!
#DIV/0!

Material delivery & handling

Assembly of pizzas
Packaging
Storage of materials
Quality inspections
Totals
Overhead Per Pizza
D.

Veggie
#DIV/0!
#DIV/0!
#DIV/0!
#DIV/0!
#DIV/0!
#DIV/0!
#DIV/0!

Total
#DIV/0!
#DIV/0!
#DIV/0!
#DIV/0!
#DIV/0!
#DIV/0!

Comparison of ABC to traditional costing based on volume

Meat
Direct Labor Hours
ABC System
Difference

E.

F.

G.

Advantages and Disadvantages of ABC

#DIV/0!
#DIV/0!

Veggie
$

#DIV/0!
#DIV/0!

Big Al's Pizza Inc.

Part Two: Section A
A.

B.

High - Low Method for Estimating Fixed and Variable Costs

Pizzas
Produced

Month

Total Overhead
Costs

LOW
HIGH
Change in Cost / Change in Volume = Variable Cost per Unit
#DIV/0! Variable Cost per Unit using High - Low
Total Overhead Costs = Fixed Costs + Variable Cost per Unit X Number of Pizzas
#DIV/0! Fixed Costs
High - Low Method for Estimating Fixed and Variable Costs
Removing month
14 from the analysis.
Pizzas
Total Overhead
Month
Produced
Costs
LOW
HIGH
Change in Cost / Change in Volume = Variable Cost per Unit
#DIV/0! Variable Cost per Unit using High - Low
Total Overhead Costs = Fixed Costs + Variable Cost per Unit X Number of Pizzas
#DIV/0! Fixed Costs

C.

Pizza
Produced

Month
1
2
3
4
5
6
7
8
9

Total Overhead
Costs

10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
Output Range

Fixed Costs
Variable Costs

$0.00
$0.000 Per Unit
Pizzas
Produced

Month
1
2
3
4
5
6
7
8
9
10
11
12
13
15
16
17
18
19
20
21
22
23
24

Total Overhead
Costs

REGRESSION ANALYSIS -- Not Including Month 14

Fixed Costs
Variable Costs

$0.00
$0.000 Per Unit
Comparison of Regressions
Adjusted R2
Fixed Costs Variable Costs
All Data
$0.00
$0.00
0%
Without 14
$0.00
$0.00
0%
Difference
$
$
$
-

D.

E.

Production
All Data
Overhead Estimate

Without 14
Overhead Estimate

Difference

er of Pizzas

ving month

er of Pizzas

Big Al's Pizza Inc.

Part 2: Section B
A.

Compute the Break-even Point

Production
Total Production
Meat Pizzas
Veggie Pizzas

Weights
#DIV/0!
#DIV/0!
#DIV/0!

Variable Costs/Pizza
Direct Material
Direct Labor
Variable Overhead
Total Variable Costs
Sales Price
Contribution Margin

Meat

Veggie

$0.00

$0.00

$0.00

$0.00

Fixed Costs
Administrative
Manufacturing
Total Fixed Costs
Yearly Fixed Cost

Weight Avg. Contribution Margin

Meat Pizzas
#DIV/0!
Veggie Pizzas
#DIV/0!
W.Avg.Contr.Margin
#DIV/0!

Break-even Units (Multiple) = Fixed Costs / Weighted Average Contribution Margin

Break-even Units (Multiple) =
#DIV/0! Total Pizzas
#DIV/0! Meat Pizzas
#DIV/0! Veggie Pizzas
B.

How can Big Al's REDUCE the break-even point?

1
2

C.

Calculate Volume for a Before Tax Profit of $150,000

Before Tax Profit

Fixed Costs
Contribution Margin

$0.00
$0.00

$0.00
#DIV/0!

Sales Volume = Fixed Costs + Before Tax Profit / Contribution Margin

Sales Volume =
#DIV/0!
Meat
#DIV/0!
Veggie
#DIV/0!

D.

Calculate Volume for an After Tax Profit of $150,000

Tax Rate
After Tax Profit
Fixed Costs
$0.00
Contribution Margin
#DIV/0!
Before Tax Profit
$
(After Tax Profit / 1-Tax Rate)

Sales Volume (to reach an after tax profit) =

[Fixed Costs + After Tax Profit/(1 - Tax Rate)]
/ Contribution Margin

Sales Volume (To Reach After Tax Profit) =

Meat Pizzas
Veggie Pizzas
E.

#DIV/0!
#DIV/0!
#DIV/0!

Change the Sales Mix to 80 / 20 for Break-even

Weighted Average Contribution Margin
Meat Pizzas
Veggie Pizzas
W.Avg.Contr.Margin

$
$
$

Break-even Units (Multiple) = Fixed Costs / Weighted Average Contribution Margin

Break-even Units (Multiple) =
#DIV/0! Total Pizzas
#DIV/0! Meat Pizzas
#DIV/0! Veggie Pizzas
Mix
93/8
80/20
Difference

F.

Total
#DIV/0!
#DIV/0!
#DIV/0!

Meat
#DIV/0!
#DIV/0!
#DIV/0!

Veggie
#DIV/0!
#DIV/0!
#DIV/0!

Compute the Break-even Point with labor costs increased by 10%.

Production
Total Production
Meat Pizzas
Veggie Pizzas

Variable Costs/Pizza
Direct Material
Direct Labor
Variable Overhead
Sales Price
Contribution Margin

Weights
#DIV/0!
#DIV/0!
#DIV/0!

Meat

Veggie

Fixed Costs
Administrative
Manufacturing
Total Fixed Costs
Yearly Fixed Cost
Weight Avg. Contribution Margin
Meat Pizzas
Veggie Pizzas
W.Avg.Contr.Margin

Break-even Units (Multiple) = Fixed Costs / Weighted Average Contribution Margin

Break-even Units (Multiple) =

#DIV/0! Total Pizzas

#DIV/0! Meat Pizzas
#DIV/0! Veggie Pizzas

Compute the Break-even Point raising the Sales Prices

Production
Total Production
Meat Pizzas
Veggie Pizzas

Variable Costs/Pizza
Direct Material
Direct Labor
Variable Overhead
Markup 40%
Contribution Margin

Weights
#DIV/0!
#DIV/0!
#DIV/0!

Meat

Veggie

$
$
$
$

$
$
$
$

Fixed Costs
Administrative
Manufacturing
Total Fixed Costs
Yearly Fixed Cost
Weight Avg. Contribution Margin
Meat Pizzas
Veggie Pizzas
W.Avg.Contr.Margin

Break-even Units (Multiple) = Fixed Costs / Weighted Average Contribution Margin

Break-even Units (Multiple) =
#DIV/0! Total Pizzas
#DIV/0! Meat Pizzas
#DIV/0! Veggie Pizzas

$0.00
$0.00

ontribution Margin

$0.00
$0.00

ontribution Margin
#DIV/0!
#DIV/0!
#DIV/0!

Big Al's Pizza Inc.

Part 2: Section C
A.

Special Order from Athletic Arena for a Special Event.

Assume: Excess Capacity

Volume

Total
Variable
Costs

Meat
Veggie
0

Total
Variable
Costs
$
$
$
-

Meat
Direct Material
Direct Labor
Variable Overhead
$

Comment on Minimum Acceptable Price.

Qualitative Factors:
1.)

2.)

C.

Veggie

Big Al's Pizza Inc.

Part 2: Section D
Current Lease
per Month
Year Lease Term
Years Remaining
Termination Penalty
Purchasing Equipment
Equipment
Dough Ball Press
Assembly table
Cardboard Cutter
Plastic Sealer
Label Installer

Price (per Unit)

10 Lines
$0
$0
$0
$0
$0
$0

Life (Months)
Discount Rate
A.
Net Present Value of Purchase
Net Present Value of Lease

B.
Purchase Price
Reduction in Operating Costs
Discount Rate
Life

($10,000.00)
$0.00

Months

Depreciation
Years
Salvage Value
Tax Rate

Present Value of Purchase

Cost Savings
Present Value of Cost Savings
Net Present Value of Purchase

C.

($10,000.00) (including lease termination penalty of $10,000)

$0.00
($10,000.00)

After Tax NPV

After tax NPV - Lease

Cash Flow
Lease Payment

After-tax
$

PV
$0.00

After tax NPV - Purchase Option 1

Purchase Price
Lease Termination
Depreciation Tax Shield
Net Present Value

$0
$0

$0
$0
$0.00
$0.00

After tax NPV - Purchase Option 2

Purchase Price
Lease Termination
Cost Savings
Depreciation Tax Shield
Net Present Value

$
$
$

$0.00
$0.00
-

D.

Other Factors

Big Al's Pizza Inc.

Part 3: Section A
Receivable
Collection
Schedule

Month of Sale
Next Month
Third Month
Bad Debt
Previous Year
Previous Year

December
November
Purchases

Sales
Distribution

Month Bought
Next Month
Ending Balance

Previous Year
Borrowing

Min. Balance
Interest Rate
Yearly

Leasing

Purchase Price
Month. Payment
Expansion Price
Fix.Man.OH. Inc

Expansion

Volume
Meat
January
February
March
April
May
June
July
August
September
October
November
December

Veggie
0
0
0
0
0
0
0
0
0
0
0
0

Meat
0
0
0
0
0
0
0
0
0
0
0
0

$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00

January
February
March
April
May
June
July
August
September
October
November
December

Production

Meat Pizza
Veggie Pizza

Sales Price

Meat Pizza
Veggie Pizza

Sales
Veggie
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00

Total
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00

Direct
Material

Meat
Veggie

Direct
Labor

Meat
Veggie

Manufacture
Overhead

Meat
Veggie

A.
Collected In
November
December
January
February
March
April
May
June
July
August
September
October
November
December
Tot. Collection
November
December
January
February
March
April
May
June
July
August
September
October
November
December
Tot. Collection

January
$0.00
$0.00
$0.00

$0.00
October

$0.00
$0.00
$0.00

$0.00

February
$0.00
$0.00
$0.00

$0.00
November

$0.00
$0.00
$0.00
$0.00

March

$0.00
$0.00
$0.00

$0.00
December

$0.00
$0.00
$0.00
$0.00

April

Cash Receipts Budget

May

$0.00
$0.00
$0.00

$0.00
Totals
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00

$0.00
$0.00
$0.00

$0.00

June

$0.00
$0.00
$0.00

$0.00

July

$0.00
$0.00
$0.00

$0.00

August

$0.00
$0.00
$0.00

$0.00

For Cash Disbursements Budget for the Year

Volume
Meat
Veggie
January
0.00
0.00
February
0.00
0.00
March
0.00
0.00
April
0.00
0.00
May
0.00
0.00
June
0.00
0.00
July
0.00
0.00
August
0.00
0.00
September
0.00
0.00
October
0.00
0.00
November
0.00
0.00
December
0.00
0.00

Direct Material
Meat
Veggie
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00

Direct Labor
Meat
Veggie
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00

Variable Overhead
Meat
Veggie
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00

B.
January
Material Purchases
January
$0.00
February
$0.00
March
$0.00
April
$0.00
May
$0.00
June
$0.00
July
$0.00
August
$0.00
September
$0.00
October
$0.00
November
$0.00
December
$0.00
Total Material Disbursements
Direct Labor Disbursements
Man. Overhead Disbursement
Sell & Admin. Disbursements
TOTAL DISBURSEMENTS
Material Purchases
January
$0.00
February
$0.00
March
$0.00
April
$0.00
May
$0.00
June
$0.00
July
$0.00
August
$0.00
September
$0.00
October
$0.00
November
$0.00
December
$0.00
Total Material Disbursements
Direct Labor Disbursements
Man. Overhead Disbursement
Sell & Admin. Disbursements
TOTAL DISBURSEMENTS

$0.00

February
$0.00
$0.00

Cash Disbursements
March
April

$0.00
$0.00

$0.00
$0.00

May

June

$0.00
$0.00

$0.00
$0.00

July

$0.00
$0.00

$0.00
$0.00
$0.00

$0.00
$0.00
$0.00

$0.00
$0.00
$0.00

$0.00
$0.00
$0.00

$0.00
$0.00
$0.00

$0.00
$0.00
$0.00

$0.00
$0.00
$0.00

$0.00
September

$0.00
October

$0.00
November

$0.00
December

$0.00
Total

$0.00

$0.00

$0.00
$0.00

$0.00
$0.00

$0.00
$0.00

$0.00
$0.00
$0.00

$0.00
$0.00
$0.00

$0.00
$0.00
$0.00

$0.00
$0.00
$0.00
$0.00
$0.00

$0.00

$0.00

$0.00

$0.00

$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00

C.
Beginning Balance
Cash Receipts
Cash Disbursements
Net Cash Flow
Equipment Purchases
Lease Termination
Factory Expansion
Ending Balance
Borrowings
Repayments
Interest
Ending Balance

Beginning Balance
Cash Receipts
Cash Disbursements
Net Cash Flow
Equipment Purchases
Lease Termination
Factory Expansion
Ending Balance
Borrowings
Repayments
Interest
Ending Balance

D.

January
$0.00
$0.00
$0.00
$0.00

February
$0.00
$0.00
$0.00
$0.00

$0.00

$0.00

Summary Cash Budget

March
April
May
$0.00 -$10,000.00
-$10,000.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
0.00
0.00
0.00
-10,000.00
0.00
-$10,000.00 -$10,000.00
-$10,000.00
$10,000.00

June

$
$
$0.00

$0.00

-$10,000.00

-$10,000.00

$0.00

September
$453.82
$0.00
$0.00
$0.00
$0.00

October
-$10,637.54
$0.00
$0.00
$0.00
$0.00

November
-$10,637.54
$0.00
$0.00
$0.00
$0.00

December
-$10,637.54
$0.00
$0.00
$0.00
$0.00

$453.82

-$10,637.54

-$10,637.54

-$10,637.54

-$7,733.15
-$3,358.21
-$10,637.54

$0.00
$0.00
-$10,637.54

$0.00
$0.00
-$10,637.54

$0.00
$0.00
-$10,637.54

Total
$0.00
$0.00
$0.00
$0.00
$0.00
-$10,000.00
$0.00
-$10,000.00
$10,453.82
-$7,733.15
-$3,358.21
-$10,637.54

July

$0
$0.00
$0.00
$0.00
0.00

$0.0
$0.00
$0.00
$0.00
0.00

$0.0

$0.00
453.82
###
###
$453.82

$0.00

September

$0.00
$0.00
$0.00

$0.00

Fixed Overhead

August

$0.00
$0.00

$0.00
$0.00
$0.00
$0.00

August
$453.82
$0.00
$0.00
$0.00
0.00

$453.82
$
$

$453.82

Big Al's Pizza Inc.

Part 3: Section B
Actual
Volume

Sales
Sales Price

A.

Budgeted

Total
Meat
Veggie
Meat
Veggie
#DIV/0! Meat
#DIV/0! Veggie

Volume

0 Total
Meat
Veggie
$0.00 Meat
$0.00 Veggie
Meat
Veggie

Sales
Sales Price

Sales Price and Volume Variances

Volume Variance = (Actual - Budgeted Volume) * Budgeted CM per Unit
Total Volume Variance =
0 $
Meat Volume Variance =
0 $
Veggie Volume Variance =
0 $
Units
Dollars

ons.
Sales Price Variance = (Actual - Budgeted Sales Price) * Actual Volume
Meat Sales Price Variance =
#DIV/0!
#DIV/0!
Veggie Sales Price Variance =
#DIV/0!
#DIV/0!

B.

Price and Quantity Variances for Direct Material

Actual

Cost
Units
Used
Cost per
Cost
Units
Used
Cost Per

Meat Pizza
Direct Material
Price
Volume Purchased
Volume Used

Budgeted

Meat
#DIV/0!

Used
Cost Per

Used
Cost Per

Veggie
#DIV/0!
Purchased
AQ * AP
AQ * SP
#DIV/0!
$0.00
#DIV/0!
$0.00
0
0

Used
AQ * SP
SQ * SP
$0.00
$0.00
$0.00
$0.00
0

Price Variance
Usage Variance
Total Material Var.

#DIV/0! U
0 U
#DIV/0! U

Purchased
AQ * AP
AQ * SP
#DIV/0!
$0.00
#DIV/0!
$0.00
0
0

Veggie Pizza
Direct Material
Price
Volume Purchased
Volume Used
Price Variance
Usage Variance
Total Material Var.

C.
Cost
Hours
Per Hour
Cost
Hours
Per Hour

Used
AQ * SP
SQ * SP
$0.00
$0.00
$0.00
$0.00
0

#DIV/0! F
0 U
#DIV/0! F

Labor Rate and Efficiency Variances

Actual
Meat
#DIV/0!
Veggie
#DIV/0!

Meat Pizza
Total Cost
Labor Rate per Pizza
Number of Hours
Rate Variance
Efficiency Variance
Total Labor Variance

AH * AR
AH * SR
$0.00
$0.00
#DIV/0!
$0.00
0
0
#DIV/0! F

Veggie Pizza
Total Cost
Labor Rate per Pizza
Number of Hours
Rate Variance
Efficiency Variance
Total Labor Variance

AH * AR
AH * SR
#DIV/0!
$0.00
#DIV/0!
$0.00
0
0
#DIV/0! F

Budgeted
$0.00
0

Cost
Hours
Per Hour
Cost
Hours
Per Hour

$0.00
0

SH * SR
$0.00
$0.00

$0.00 U
#DIV/0! F
SH * SR
$0.00
$0.00
0
$
#DIV/0! U

D.

Variable Overhead Rate and Efficiency Variances

Actual
Total
Predetermined OH Rate
Variable OH
Fixed OH

Total
Hours
SVR
Spending Variance
Efficiency Variance
Total Overhead Variance

E.

Actual Var.
OH Expense AH x SVR
$0.00 $
-

SH x SVR
$
0

$
$0.00 U

0
$

$0.00 U

$0.00 U

Variance Analysis and ABC Cost Systems

Big Al's Pizza Inc.

Part 3: Section C
Sales Price to Customers
Meat
Veggie

A.

Unrelated Supplier
Meat
Veggie

Minimum price for Transfer to Big Al's Pizza Emporium

Variable Costs of Production
Meat Pizza
Veggie Pizza

B.

Maximum price for Transfer to Big Al's Pizza Emporium?

The Market Price
$0.00 Meat Pizza
$0.00 Veggie Pizza

C.

What is the Ideal transfer Price?

D.

Should Big Al's Emporium buy Pizzas from Big Al's

E.

What Should the Transfer Price be if Big Al's Pizza is at Full Capacity?