Question

What is the 2019 Cost of Goods Manufactured for Spinach Oreos

Oreo Inc. is a cookie manufacturer making delicious chocolate cookies. Early in 2019, in an effort to produce healthier products, the company began production of a special edition spinach flavored Oreo cookie. In January, $1,000,000 was spent on developing marketing and advertising materials. For the first six months of 2019, the company spent an additional $900,000 promoting the special spinach Oreo cookie. The product was ready for manufacture on January 21, 2019. Oreo Inc. uses a job order cost system to accumulate costs for the spinach Oreo cookie. Direct materials unit costs for the Oreo are as follows: Chocolate $5.00 Sugar 3.00 Spinach 0.30 The actual production process for the spinach Oreo is fairly straightforward. First, the chocolate, cream, and spinach are brought to a mixing and baking machine. The machine mixes the ingredients, forms and bakes round cookies. The machine requires one hour per 200 cookies. After the Oreo is mixed, baked, and formed into cookies, it is brought to assembly, where assembly personnel put two cookies together with spinach mixture in the middle and pack the Oreos for shipping. The direct labor cost to put the two cookies together with the spinach mixture for this work is $0.45 per unit. The completed packages are then sold to retail outlets through a sales force. The sales force is compensated by a 30% commission on the wholesale price for all sales. Total completed production was 750,000 units during the year. Other information is as follows: Number of spinach Oreo units sold in 2019 Wholesale price per unit 730,000 $25 Factory overhead cost is applied to jobs at the rate of $1,250 per machine hour. There were an additional 15,000 mixed and baked Oreos waiting to be assembled on December 31, 2019. In your computations, if required, round interim per unit costs to two decimal places.

What is the 2019 Cost of Goods Sold for Spinach Oreos

What is the Income from Operations for the Spinach Oreo division

Based on the Income from Operations, was Spinach Oreos a good idea (yes or no)

Answer 1

1) Cost of Production in 2019
Direct material cost per unit
Chocolate	5.00
Sugar	3.00
Spinach	0.30
	8.30
Direct Labour Cost per unit	0.45
Factory Overhead	= 1,250 per machine hour
Production per mahine hour	= 200 cookies
Machine hour to produce 750,000 units	= 750,000/200
	= 3750 machhine hour
Factory overhead for 750,000 unit               =	3750 X 1,250
	4,687,500
Cost of Production in 2019                       =	Direct material + Direct Labour + Factory overhaed
Direct Material cost for 750,000 units       =	750,000 X 8.3
	62,25,000
Direct Labour Cost	= 750,000 X .45
	= 3,37,500
Factory overhead	= 46,87,500
Total Cost of Production	6,225,000 + 3,37500 + 4,687,500
Cost of production for 750,000 units	= 1,12,50,000
Per unit Cost of Spinach Oreos	= Total Cost of production/Number of units manufactured
	= 11,250,2000 /750,000
	= 15 per unit
2) Cost of Godds sold in 2019
Number of Units Sold	730,000 units
Cost goods Sold	Cost of goos manufactured + selling and distribution expense
Cost of goods manuactured for 730,000	= 730,000 X 15
	10,950,000
Commission	30 % of whole sale price
Whole sale price	25
Commission for 730,000 units	730,000 X (25X30%)
	= 730,000 X 7.5
	= 5,475,000
Promotional expense	= 900,000
Cost of Goods sold	= 10,950,000 + 5,475,000 + 900,000 + 1,000,000
	= 18,325,000
3) Income from operation of Spinach Oreos
Income from operation	= Sales amount - Cost of Goods sold
Sales amount for 730,000 units	= 730,000 X 25
	= 18,250,000
Cost of Goods sold	= 18,325,000
Income from operation (Loss)	= 18,250,000 - 18,325,000
	= (75,000)
4) Based on income from operatoin Spinach Oreos is good idea
Yes
In the year 2019 the loss is only $ 75,000 because of the aditional promotional expense incurred
Next year ownwards they are not required any additional promotional expense in the market