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.
a. Determine the sales volume variance and indicate whether it is favorable (F) or unfavorable (U).
Sales ($8 per unit)
b. Determine the flexible budget variance, and indicate whether it is favorable (F) or unfavorable (U).
Flexible Budget Variance
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
Cost of paper goods per bar
Expected fixed costs (total for the month):
Depreciation on truck
Gas for truck
General and administrative costs
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.
Mfg and storage
Gas for truck
General and Admin.
d. Evaluate the three possible outcomes you determined in Requirements a, b, and c and recommend a pricing strategy.
Compute variances for the following items and indicate whether each variance is favorable (F) or unfavorable (U)
Favorable (F) or Unfavorable (U)
Cost of goods sold
Material purchases at 5,000 pounds
Wages at 4,000 hours
Labor usage at $12 per hour
Research and development expense
Selling and administrative expenses
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