Question

Caiman Distribution Partners is the Brazilian distribution company of a U.S. consumer products firm. Inflation in Brazil has made bidding and budgeting difficult for marketing managers trying to penetrate some of the country's rural regions. The company expects to distribute 450,000 cases of products in Brazil next month. The controller has classified operating costs (excluding costs of the distributed product) as follows:

Account	Operating Cost			Behavior
Supplies	$	1,729,000		All variable
Supervision		214,000		$	166,000	Fixed
Truck expense		1,340,000		$	182,000	Fixed
Building leases		868,000		$	545,000	Fixed
Utilities		224,000		$	111,000	Fixed
Warehouse labor		863,000		$	133,000	Fixed
Equipment leases		763,000		$	587,000	Fixed
Data processing equipment		927,000		All fixed
Other		836,000		$	343,000	Fixed
Total	$	7,764,000

Although overhead costs were related to revenues throughout the company, the experience in Brazil suggested to the managers that they should incorporate information from a published index of Brazilian prices in the distribution sector to forecast overhead in a manner more likely to capture the economics of the business.

Following instructions from the corporate offices, the controller's office in Brazil collected the following information for monthly operations from last year:

Month	Cases	Price Index	Operating Costs
1	255,000	122	$5,699,175
2	323,000	116	5,806,674
3	256,000	125	5,849,941
4	444,000	117	5,927,653
5	328,000	118	5,939,171
6	394,000	124	6,043,400
7	474,000	137	5,918,531
8	488,000	138	6,133,904
9	326,000	139	6,126,166
10	434,000	128	6,186,661
11	420,000	126	6,208,835
12	489,000	129	6,362,291

These data are considered representative for both past and future operations in Brazil.

Required:

a-1. Determine the variable cost per case assuming that 450,000 cases will be shipped next month based on the controller's analysis of accounts. (Round your answer to 2 decimal places.)

a-2. Prepare an estimate of operating costs.

Answer 1

ANSWER

A1	Estimating Equation based on account analysis
	Cost Item	Operating Cost	Fixed Cost	Variable
	Supplies	$1,729,000		$1,729,000
	Supervision	$214,000	$166,000	$48,000
	Truck Expense	$1,340,000	$182,000	$1,158,000
	Building Leases	$868,000	$545,000	$323,000
	Utilities	$224,000	$111,000	$113,000
	Warehouse Factor	$863,000	$133,000	$730,000
	Equipment leases	$763,000	$587,000	$176,000
	Data Processing Equipment	$927,000	$927,000	$0
	Other	$836,000	$343,000	$493,000
	Total	$7,764,000	$2,994,000	$4,770,000
	Variable Cost per case	Total Variable Cost/Cases Produced
		$4,770,000/450,000
		10.6 per case
A2	Estimate OH	Fixed OH +variable OH per case *no of cases
		$2,994,000+$10.6*450000
		$7,764,000

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