Question

miller cereals is a small milling company that makes a single brand of cereal.

aps TOUTUDe llallside News Ju -2,3,4 Saved Help Save Integrative Cases 1-54 (Algo) Cost Data for Managerial Purposes-Finding Unknowns (LO 1-3) Miller Cereals is a small milling company that makes a single brand of cereal. Recently, a business school intern recommended that the company introduce a second cereal in order to "diversify the product portfolio. Currently, the company shows an operating profit that is 25 percent of sales. With the single product, other costs were twice the cost of rent. The intern estimated that the incremental profit of the new cereal would only be 10.5 percent of the incremental revenue, but it would still add to total profit. On his last day, the intern told Miller's marketing manager that his analysis was on the company laptop in a spreadsheet with a file name, New Product.xlsx. The intern then left for a 12-month walkabout in the outback of Australia and cannot be reached. When the marketing manager opened the file, it was corrupted and could not be opened. She then found an early (incomplete) copy on the company's backup server. The incomplete spreadsheet is shown as follows. The marketing manager then called a cost management accountant in the controller's office and asked for help in reconstructing the analysis. Required: As the management accountant, fill in the blank cells. (Do not round intermediate calculations. Round your final answers to the nearest whole number. Enter all amounts as positive values.) Miller Cereals Projected Income Statement For One Year Status Quo: % Increase Alternative: Single Product (Decrease) Two Products Difference < Prev 1 of 4 !!! Next >

Answer 1

Corresponding Working Notes are given against the blank cell as reference. Look for those working notes below. Feel free to comment below if you have any more doubts.

Miller Cereals Projected Income Statement For One Year Status Quo: % Increase Alternative Single Product (Decrease) Reference Two Products Difference Reference $ 2,84,000.00 25% WN 6 $3,55,000.00 $ 71,000.00 Sales Revenue Costs Material $ 51,000.00 Labour $ 52,400.00 Rent $ 31,983.00 Depreciation $ 9,100.00 Utilities $ 4,550.00 Other $ 63,967.00 Total Costs $ 2,13,000.00 Operating profit $ 71,000.00 28% WN 1 25% WN 2 40% WN9 0% WN 3 34% WN 4 34% WN 9 30% WN 8, 12 11% WN 7 $ 65,500.00 $ 14,500.00 $ 65,500.00 $ 13,100.00 $ 44,776.00 $12,793.00 WN 10 $ 9,100.00 $ $ 6,100.00 $ 1,550.00 $ 85,569.00 $ 21,602.00 WN 13 $2,76,545.00 $63,545.00 WN 12 $ 78,455.00 $ 7,455.00 WN 5, 11

WN 1.

% Increase Material = ($65,500 - $51,000) / $51,000 = 28% (Rounded)

WN 2

Status Quo Labour = Let be Y

($65,500 - $Y) / $Y = 25%

Y = $52,400

WN 3

% Increase depreciation = 0% (Since no change)

WN 4

Difference in utilities = $1,150

So status quo Utilities = $6,000 - $1,550 = $4,550

% Increase Utility = ($6,100 - $4,550) / $4,550 = 34% (Rounded)

WN 5

Incremental profit = 10.5% of incremental revenue = 10.5% x $71,000 = $7,455

WN 6

Let Status quo sale be P

Therefor P x 25% = $71,000

P = $2,84,000

Alternative Sales = $2,84,000 x 125% = $3,55,000

WN 7

Status quo operating profit = 25% of Sales revenue = 25% x 284,000 = $71,000

WN 8

Total Costs = Sales revenue - Operating profit = $284,000 - $71,000 = $213,000

WN 9

At status quo, other costs = 2 x cost of rent

Let Cost of rent be R, so other cost will be 2R

Total costs = $2,13,000 Identified costs till now = $1,17,050 Unidentified costs =$2,13,000 - $1,17,050 =$95,950

$95,950 = R + 2R

R = $31,983 = Rent

2R = $63,967 = Other costs

WN 10

Alternative Rent = $31,983 + 40% = $44,776 (Rounded off)

WN 11

Alternative operating profit = Status quo operating profit + $7,455 = $78,455

WN 12

Alternative Total costs = Alternative sales - Alternative operating profit = $355,000 - $78,455 = $276,545

WN 13

Alternative Other costs = Total Costs - Identified costs = $276,545 - $190,976 =