Finance questions and answers

Finance

One batch takes 20 hours to make and produces 400L of ice cream. Sales last year totaled 50,000,000 liters of ice cream and the plant was working at full capacity. Therefore, the plant's capacity in working hours is:

50,000,000 / 400 = 125,000 batches * 20 hours per batch = 2.5 million machine hours. That is 285 machines in the plant, each working 24 hours per day.

Fixed manufacturing costs are $3,000,000 in total. The plant produces 50,000,000 liters of ice cream last year. Thus costs are 3,000,000 / 50,000,000 = $0.06 per liter of ice cream.

Variable factory overhead is $1,000,000 for the plant, or one-third of the fixed manufacturing overhead. This means that the variable factory overhead is going to be $0.02 for every liter of ice cream.

Based on the costs of inputs, the total cost of a liter of ice cream is as follows:

A2015893 Ice Cream

$/Liter

Milk

Cream

Sugar

Egg

Flavoring

Direct Labor

Tubs/L

0.02

Fixed Mfg

0.06

Variable Ovhd

0.02

Total

$0.60

2. Each liter of ice cream sells for $1.00. The variable costs, as noted above, as $0.60. This gives a contribution margin of $0.40. To obtain the contribution margin, the remaining fixed costs need to be divided by the contribution, as follows:

Breakeven Calculation

Revenue

Variable Costs

$0.60

Contribution Margin

$0.40

Fixed Costs

10,800,000

Breakeven volume (L)

27,000,000

3. The St. Albans plant is donating ice cream to the marketing plant at standard cost. The total standard cost typically consists of direct materials, direct labor and overheads. Thus, all of the expenses noted in the income statement at Ben & Jerry's would be included. This is because the plant is operating at full capacity so it is reasonable to assume that all costs associated with this production are reasonably expected to be incurred. The variable costs associated with 400,000 liters are:

(400,000)(.6) = $240,000