Question

Required information

[The following information applies to the questions displayed below.]

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	$	1,415,000		All variable
Supervision		204,000		$	160,000	Fixed
Truck expense		1,340,000		$	196,000	Fixed
Building leases		844,000		$	556,000	Fixed
Utilities		213,000		$	143,000	Fixed
Warehouse labor		847,000		$	144,000	Fixed
Equipment leases		761,000		$	581,000	Fixed
Data processing equipment		958,000		All fixed
Other		849,000		$	373,000	Fixed
Total	$	7,431,000

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	249,000	115	$5,699,165
2	346,000	115	5,806,664
3	250,000	122	5,849,931
4	406,000	128	5,927,643
5	335,000	117	5,939,161
6	362,000	124	6,043,390
7	395,000	129	5,918,521
8	456,000	127	6,133,894
9	385,000	136	6,126,156
10	432,000	135	6,186,651
11	398,000	130	6,208,825
12	457,000	143	6,362,281

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

Operating a-1) Account Variable Fixed Cost Supplies $1,415,000 $1,415,000 $0 (Fixed = $1415000 - $1415000 = $0 --> As all variable] Supervision $204,000 $44,000 $160,000 [Variable = $204000 - $160000 = $44000 --> As partially fixed] Truck expense $1,340,000 $1,144,000 $196,000 [Variable = $1340000 - $196000 = $1144000 --> As partially fixed] Building leases $844,000 $288,000 $556,000 (Variable = $844000 - $556000 = $288000 --> As partially fixed] Utilities $213,000 $70,000 $143,000 [Variable = $213000 - $143000 = $70000 --> As partially fixed] Warehouse labor $847,000 $703,000 $144,000 [Variable = $847000 - $144000 = $703000 --> As partially fixed] Equipment leases $761,000 $180,000 $581,000 [Variable = $761000 - $581000 = $180000 --> As partially fixed] Data processing equipme $958,000 $0 $958,000 [Variable = $958000 - $958000 = $0 --> As all fixed] Other $849,000 $476,000 $373,000 [Variable = $849000 - $373000 = $476000 --> As partially fixed] Total $7,431,000 $4,320,000 $3,111,000 Therefore, Total variable costs # of cases distributed Variable cost per case $4,320,000 (As calculated above] 450,000 $9.60 ($4320000 / 450000 cases]

a-2) Estimated operating costs = Fixed costs + (Number of cases shipped x Variable cost per case) --> Estimated operating costs = $3111000 + (Number of cases distributed x $9.60) --> Estimated operating costs = $3111000 + (450000 x $9.60) --> Estimated operating costs = $3111000 + $4320000 --> Estimated operating costs = $7431000 (Satisfied the total costs as per given schedule)