Aunt Molly's Old Fashioned Cookies bakes cookies for retail stores. The company's best-selling cookie is the chocolate nut supreme, which is marketed as a gourmet cookie and regularly sells for $8.00 per pound. The standard cost per pound of chocolate nut supreme, based on Aunt Molly's normal monthly production of 400,000 pounds is as follows: Cost Item Quantity Standard Unit Cost Total Cost Direct material: Cookie mix 10 oz. $0.02 per oz. $0.20 Milk Chocolate 5 oz. $0.15 per oz. $0.75 Almonds 1 oz. $0.50 per oz. $0.50 Total $1.45 Direct Labor Mixing 1 min $14.40 per hr. $0.24 Baking 2 min $18.00 per hr. $0.60 Total $0.84 Cost Item Quantity Standard Unit Cost Total Cost Variable overhead 3 min $32.40 per direct-labor hr. $1.62 Total Standard cost per pound $3.91 Aunt Molly's management accountant, Karen Blair, prepares monthly budget reports based on these standard costs. The month of April's contribution report, which compares budgeted and actual performance, is shown in the following schedule. Contribution report for April: Static budget Actual Variance Favorable or unfavorable Units (in pounds) 400,000 450,000 50,000 Favorable Revenue $3,200,000 $3,555,000 $355,000 Favorable Direct material $580,000 $865,000 $285,000 Unfavorable Direct labor $336,000 $348,000 $12,000 Unfavorable Variable Overhead $648,000 $750,000 $102,000 Unfavorable Total variable costs $1,564,000 $1,963,000 $399,000 Unfavorable Contribution margin $1,636,000 $1,592,000 $44,000 Unfavorable Justine Madison, president of the company, is disappointed with the results. Despite a sizable increase in the number of cookies sold, the product's expected contribution to the overall profitability of the firm decreased. Madison has asked Blair to identify the reason why the contribution margin decreased. Blair has gathered the following information to help in the analysis of the decrease. Usage report for April: Cost Item Quantity Actual cost Direct materials Cookie mix 4,650,000 oz. $93,000 Milk Chocolate 2,660,000 oz. $532,000 Almonds 480,000 oz. $240,000 Direct labor Mixing 450,000 min $108,000 Baking 800,000 min $240,000 Variable overhead $750,000 Total variable cost $1,963,000 Prepare a new contribution report for April, in which: a) The static budget column in the contribution report is replaced with a flexible budget column. b) The variances in the contribution report are recomputed as the difference between the flexible budget and the actual columns. What is the total contribution margin in the flexible budget column?
Aunt Molly's Old Fashioned Cookies bakes cookies for retail stores. The company's best-selling cookie is the chocolate nut supreme, which is marketed as a gourmet cookie and regularly sells for $8.00 per pound. The standard cost per pound of chocolate nut supreme, based on Aunt Molly's normal monthly production of 400,000 pounds is as follows: Cost Item Quantity Standard Unit Cost Total Cost Direct material: Cookie mix 10 oz. $0.02 per oz. $0.20 Milk Chocolate 5 oz. $0.15 per oz. $0.75 Almonds 1 oz. $0.50 per oz. $0.50 Total $1.45 Direct Labor Mixing 1 min $14.40 per hr. $0.24 Baking 2 min $18.00 per hr. $0.60 Total $0.84 Cost Item Quantity Standard Unit Cost Total Cost Variable overhead 3 min $32.40 per direct-labor hr. $1.62 Total Standard cost per pound $3.91 Aunt Molly's management accountant, Karen Blair, prepares monthly budget reports based on these standard costs. The month of April's contribution report, which compares budgeted and actual performance, is shown in the following schedule. Contribution report for April: Static budget Actual Variance Favorable or unfavorable Units (in pounds) 400,000 450,000 50,000 Favorable Revenue $3,200,000 $3,555,000 $355,000 Favorable Direct material $580,000 $865,000 $285,000 Unfavorable Direct labor $336,000 $348,000 $12,000 Unfavorable Variable Overhead $648,000 $750,000 $102,000 Unfavorable Total variable costs $1,564,000 $1,963,000 $399,000 Unfavorable Contribution margin $1,636,000 $1,592,000 $44,000 Unfavorable Justine Madison, president of the company, is disappointed with the results. Despite a sizable increase in the number of cookies sold, the product's expected contribution to the overall profitability of the firm decreased. Madison has asked Blair to identify the reason why the contribution margin decreased. Blair has gathered the following information to help in the analysis of the decrease. Usage report for April: Cost Item Quantity Actual cost Direct materials Cookie mix 4,650,000 oz. $93,000 Milk Chocolate 2,660,000 oz. $532,000 Almonds 480,000 oz. $240,000 Direct labor Mixing 450,000 min $108,000 Baking 800,000 min $240,000 Variable overhead $750,000 Total variable cost $1,963,000 Prepare a new contribution report for April, in which: a) The static budget column in the contribution report is replaced with a flexible budget column. b) The variances in the contribution report are recomputed as the difference between the flexible budget and the actual columns. What is the total contribution margin in the flexible budget column?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Aunt Molly's Old Fashioned Cookies bakes cookies for retail stores. The company's best-selling cookie is the chocolate nut supreme, which is marketed as a gourmet cookie and regularly sells for $8.00 per pound. The
| Cost Item | Quantity | Standard Unit Cost | Total Cost |
|
Direct material: |
|||
| Cookie mix | 10 oz. | $0.02 per oz. | $0.20 |
| Milk Chocolate | 5 oz. | $0.15 per oz. | $0.75 |
| Almonds | 1 oz. | $0.50 per oz. | $0.50 |
| Total | $1.45 | ||
| Direct Labor | |||
| Mixing | 1 min | $14.40 per hr. | $0.24 |
| Baking | 2 min | $18.00 per hr. | $0.60 |
| Total | $0.84 | ||
| Cost Item | Quantity | Standard Unit Cost | Total Cost |
| Variable |
3 min | $32.40 per direct-labor hr. | $1.62 |
| Total Standard cost per pound | $3.91 |
Aunt Molly's
Contribution report for April:
| Static budget | Actual | Variance | Favorable or unfavorable | |
| Units (in pounds) | 400,000 | 450,000 | 50,000 | Favorable |
| Revenue | $3,200,000 | $3,555,000 | $355,000 | Favorable |
| Direct material | $580,000 | $865,000 | $285,000 | Unfavorable |
| Direct labor | $336,000 | $348,000 | $12,000 | Unfavorable |
| Variable Overhead | $648,000 | $750,000 | $102,000 | Unfavorable |
| Total variable costs | $1,564,000 | $1,963,000 | $399,000 | Unfavorable |
| Contribution margin | $1,636,000 | $1,592,000 | $44,000 | Unfavorable |
Justine Madison, president of the company, is disappointed with the results. Despite a sizable increase in the number of cookies sold, the product's expected contribution to the overall profitability of the firm decreased. Madison has asked Blair to identify the reason why the contribution margin decreased. Blair has gathered the following information to help in the analysis of the decrease.
Usage report for April:
| Cost Item | Quantity | Actual cost |
| Direct materials | ||
| Cookie mix | 4,650,000 oz. | $93,000 |
| Milk Chocolate | 2,660,000 oz. | $532,000 |
| Almonds | 480,000 oz. | $240,000 |
| Direct labor | ||
| Mixing | 450,000 min | $108,000 |
| Baking | 800,000 min | $240,000 |
| Variable overhead | $750,000 | |
| Total variable cost | $1,963,000 |
Prepare a new contribution report for April, in which:
a) The static budget column in the contribution report is replaced with a flexible budget column.
b) The variances in the contribution report are recomputed as the difference between the flexible budget and the actual columns. What is the total contribution margin in the flexible budget column?
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