Question

Leaf Peeper's Ice Cream, Inc. (LPIC) is a maker of ice cream with seasonally-inspired flavors. Their sales volume is larger than the owners could have imagined, and each of the past three years they have grown. Despite their sales success, profits are not as high as expected. Cal Kidd and B.J. Bryson, owners and managers of LPIC, have released a RFP (request for proposal) to hear pitches for managerial accounting services. Explain to management what the difference is between sales (revenues) and profits (net income). The first thing you decide to do when putting together your pitch is categorize the costs incurred by LPIC. Variable Administrative Selling Manufacturing Manufacturing Indirect Fixed Direct yes yes yes yes Freight-out Cream used to make ice cream Sugar used to make ice cream Factory machine operator wages Food grade oil for machines* Factory rent Factory utilities Vanilla used to make ice cream Office building occupancy Advertising (general) Toppings to make ice cream Cartons to hold ice cream Finished goods refrigeration Office staff salary Sales commissions

Answer 1

Part 1

Revenue is the total amount of income generated by the sale of goods or services related to the company's primary operations. Profit, typically called net profit or the bottom line, is the amount of income that remains after accounting for all expenses, debts, additional income streams and operating costs.

• Revenue is the total amount of income generated by the sale of goods or services related to the company's primary operations.
• Revenue, also known simply as "sales", does not deduct any costs or expenses associated with operating the business.
• Profit is the amount of income that remains after accounting for all expenses, debts, additional income streams, and operating costs.
• While revenue and profit both refer to money a company earns, it's possible for a company to generate revenue but have a net loss.

Part 2

Cream, sugar, and other ingredients would be considered direct materials; without them the main product could not exist. Indirect materials might include ice-cream scoops, freezers, and measuring cups.

	Variable overhead	Fixed	Selling	Adminstrative	Direct manufecturing	Indirect manufecturing
Freight Out				Yes			Yes
Cream used to make ice cream	Yes				Yes
Suger used to make the ice cream	Yes				Yes
factory machine operator wages	Yes				Yes
Food grade oil for machine	Yes				Yes
factory rent		Yes				Yes
factory utility		Yes				Yes
Vanilla used to make ice cream	Yes					Yes
Office building occupancy		Yes				Yes
Advertising general			Yes			Yes
Topping to make ice cream	Yes				Yes
Carton to hold ice cream		Yes			Yes
finished good refrigeration						Yes
Office staff salary				yes		yes
Sales commission			Yes			Yes