Question

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 3.5 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, NewProduct.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 $ 244,000 25 % $ 305,000 Difference $ 61,000 Costs 41,000 19,500 Material Labor Rent 48 % 25 % 60,500 60,500 40 % Depreciation Utilities 8,100 4,050 01 % 26 % 8,100 5,100 1,050 Other Total costs Operating profit 58,865 2,135 $ 61,000 4% $ 63,135 $

I don't know which number should go in other blanks and how to get it.

Answer 1

Projected Income Statement
	Status Quo	% Increase	Two products	Difference
Sales Revenue	244000	25%	305000	61000
Costs
Material	41000	48%	60500	19500
Labor	48400	25%	60500	12100
Rent	27150	40%	38010	10860
Depreciation	8100	0%	8100	0
Utilities	4050	26%	5100	1053
Other	54300	28%	69655	15352
Total costs	183000	32%	241865	58865
Operating profit	61000	4%	63135	2135
Rent + Other costs = 183000-41000-48400-8100-4050
=$81450
Other costs are twice the cost of rent
Hence, three times rent = 81450
Rent = $27150

BC А 1 Projected Income Statement 2 Status Quo % Increase 244000 0.25 Two products =B3*(1+C3) Difference =D3-B3 3 Sales Revenue 5 Costs 6 Material 7 Labor 8 Rent 9 Depreciation 10 Utilities 11 Other 12 Total costs 13 Operating profit 41000 =(D6-B6/B6 60500 =D6-B6 =D7/(1+C7) 0.25 60500 =D7-B7 27150 0.4 =B8*(1+C8) =D8-B8 8100 =B9*(1+C9) =D9-B9 4050 0.26 =B10*(1+C10) =D10-B10 =B8*2 =(D11-11)/B11 =D12-SUM(D6:D10) =D11-B11 =B3-B13 =(D12-B12)/B12 =D3-D13 =D12-B12 61000 0.04 =B13+E13 =(D3-B3) *3.5% 14 15 Rent + Other costs = 183000-41000-48400-8100-4050 16 =$81450 17 Other costs are twice the cost of rent 18 Hence, three times rent = 81450 19 Rent = $27150