Question

I missed the labor rate on part b, so the rest of the questions are incorrect. These are the answers that I got, but I need the problem worked out to see where I went wrong. I hope that makes sense. Thank you for your help.

calculate the cost and profitability of a new, dry cereal product: Rootie Tootie Frooties.

Costs are to be calculated for:

            Ingredients

            Packaging

            Direct Labor

Overhead (indirect labor, supervision, maintenance, NRG, depreciation, admin & general, employee benefits, insurance, taxes)

Annual sales forecast = 12,500,000 cases, each case containing 12 boxes; each box contains 10.5 ounces, net weight.

Two (2) production lines.

Production schedule = two (2) eight (8) hour shifts; 16 production hours per day. Five (5) days per week; M-F. No overtime schedules.

Ingredients per 10.5 ounce box:

Wheat Flour: $0.578

Sugar: $0.121

Vitamins: $0.050

Coloring: $0.015

Packaging costs per boxes:

Inner liner: $0.016

Decorated box: $0.098

Corrugated shipping case = $0.080

Direct Labor per shift required to produce Rootie Tootie Frooties:

1 kitchen lift truck driver

2 ingredient mixers

2 drier operators

4 flake inspectors

2 box erectors

2 caser operators

1 palletizer operator

1 take-away driver

Average Labor Rate per Hour = $17.85

Overhead per case of 12 boxes = $1.675

Gross Margin Target = 50% of sales revenues

Calculate:

1a. How many cases per minute must be produced to meet the annual sales forecast? Disregard any inventory; assume JIT.

Annual sales forecast 12,500,000

Production Schedule per year 249,600 (2*8*52*60 minutes)

Annual sales forecast/production schedule per year= 50.08

1b. Total Cost Per Case of 12 boxes (C):

Cost breakdown for each box 10.5 ounces

Wheat Flour: 0.0578

Sugar: 0.121

Vitamins: 0.050

Coloring: 0.015

Inner Liner: 0.016

Decorated Box: 0.098

Cost per Box: 0.878

Cost per case (12 boxes)= 0.878*12= $10.54

Corrugated Shipping Case: 0.080

Overhead per Case= 1.675

Labor Rate per Case= 0.006

Total Cost per case of 12 boxes= $12.297

1c Selling Price per case to yield a 50% profit margin (SP)

$12.297/0.5= $24.59

Total cost per case/50%

1d. Selling price per ounce

$24.59/(12*10.5)= $.20

Selling price per case/ 12 boxes multiplied by 10.5 ounces

1e. Pre-tax profit margin per case (SP – C)

Selling price per case- total cost per case of 12 boxes

24.59-12.297= 12.293

1f. Pre-tax profit margin $ per year

12.293 pre-tax profit margin per case* forecast of $12.5M= $153,662,500

Answer 1

1(a) Time available = 2x8x5x52 = 4160 hours = 4160x60 =249600 min.

Cases need to be produced per min = 1250000/249600 = 5.008 cases /min

1(b) Total cost per case of 12 boxes -

Cost of one box -

Ingredients = 0.764

Packaging = 0.194

Overhead per box = 1.675/12 = 0.139

Labour rate per day = 17.85x16 x15 workers = 4284 per day

Boxes produced per day = 5.008x12x60x16 = 57692

Labour rate per box = 4284/57692 =0.0742

total cost per box = 0.764+0.194+0.139+0.0742 = 1.171

Total cost per case = 12x1.171 =14.05

1c

Selling price at 50% margin = 14.05 /0.5 =28.10

1d

Selling price per ounce = 28.10/12 x10.5 =0.223

1e Pre tax profit margin per case = 28.10 -14.05 =14.05

1f pre ta profit margin per year = 1250000x14.05 =17562500