The profit and loss statement below shows that Delicious Deserts made a Total Revenue of $275,000 and sold 1,375 wedding cakes. During 2012, they made three times (3X) more than they did versus 2011. Of course, because they invested in new ovens, made more cakes, and hired new part-time staff, the cost of doing business also rose. The net profit for 2012 was a slim $32,175. The salary for a professional desert baker averaged $70,000 per year in California. Please examine the profit and loss statement on the next page, then answer the questions on pages 4 through 6. Delicious Deserts, Incorporated Income Statement For The Year Ending December 31, 2012 Revenues Gross Sales....................................................................$275,000 Less: Sales Discounts ..................................................$ 2,500 Less: Returns (Cancelled Weddings)...........................$ 2,000 Net Sales...............................................................................................$270,500 Cost of Goods Sold Beginning Inventory (January 1).................................$ 18,000 Cost Of Ingredients To Bake Cakes............................$109,500 Total Cost of Goods For Sale......................................$127,500 Less: Ending Inventory December 31.........................$ 15,000 Cost of Goods Sold..............................................................................$112,500 Gross Profit.....................................................................................................$158,000 Operating Expenses Selling Expenses Sales Commissions........................................$ 31,000 Advertising...................................................$ 16,000 Other Selling Expenses (Internet).................$ 18,000 Total Selling Expenses...............................................$ 65,000 General and Administrative Expenses Professional & Office Salaries.................................$ 20,500 Utilities....................................................................$ 5,000 Office Supplies........................................................$ 1,500 Bank Interest Paid on Loans....................................$ 3,600 Insurance.................................................................$ 2,500 Rent (Fixed Cost)....................................................$ 17,000 Total General & Administrative Expense.............................$ 50,100 Total Operating Expenses..................................................$115,100 Net Profit Before Taxes..............................................................................$ 42,900 Less: Federal/State/Local Taxes................................................................$ 10,725 NET PROFIT.............................................................................................$ 32,175 Question #1: What was the Total Fixed Cost of running this business? Free Answer: The rent was the only fixed cost that Delicious Deserts had. They paid $17,000 per year or $1,416.66 per month for rent. All other expenses were variable costs. Question #2: What was the Total Variable Cost of running this business? Answer: $________________________________________ Clue: Add up Cost of Goods Sold, Total Operating Expenses (less Rent), Income Tax Expense and include the write-off losses from Sales Discounts & Wedding Cancellations. Question #3: Assuming that Delicious Deserts sold 150 cakes during Q1, 300 cakes during Q2, 450 cakes during Q3, and 475 cakes during Q4, what was the Total Revenue during each quarter assuming the prices were: Q1 - $275 per cake, Q2 - $240 per cake, Q3 - $180 per cake and Q4 - $170 per cake? Q1 - Total Revenue = $____________________________ Q2 - Total Revenue = $____________________________ Q3 - Total Revenue = $____________________________ Q4 - Total Revenue = $____________________________

The profit and loss statement below shows that Delicious Deserts made a Total Revenue of $275,000 and sold 1,375 wedding cakes. During 2012, they made three times (3X) more than they did versus 2011. Of course, because they invested in new ovens, made more cakes, and hired new part-time staff, the cost of doing business also rose. The net profit for 2012 was a slim $32,175. The salary for a professional desert baker averaged $70,000 per year in California. Please examine the profit and loss statement on the next page, then answer the questions on pages 4 through 6. Delicious Deserts, Incorporated Income Statement For The Year Ending December 31, 2012 Revenues Gross Sales....................................................................$275,000 Less: Sales Discounts ..................................................$ 2,500 Less: Returns (Cancelled Weddings)...........................$ 2,000 Net Sales...............................................................................................$270,500 Cost of Goods Sold Beginning Inventory (January 1).................................$ 18,000 Cost Of Ingredients To Bake Cakes............................$109,500 Total Cost of Goods For Sale......................................$127,500 Less: Ending Inventory December 31.........................$ 15,000 Cost of Goods Sold..............................................................................$112,500 Gross Profit.....................................................................................................$158,000 Operating Expenses Selling Expenses Sales Commissions........................................$ 31,000 Advertising...................................................$ 16,000 Other Selling Expenses (Internet).................$ 18,000 Total Selling Expenses...............................................$ 65,000 General and Administrative Expenses Professional & Office Salaries.................................$ 20,500 Utilities....................................................................$ 5,000 Office Supplies........................................................$ 1,500 Bank Interest Paid on Loans....................................$ 3,600 Insurance.................................................................$ 2,500 Rent (Fixed Cost)....................................................$ 17,000 Total General & Administrative Expense.............................$ 50,100 Total Operating Expenses..................................................$115,100 Net Profit Before Taxes..............................................................................$ 42,900 Less: Federal/State/Local Taxes................................................................$ 10,725 NET PROFIT.............................................................................................$ 32,175 Question #1: What was the Total Fixed Cost of running this business? Free Answer: The rent was the only fixed cost that Delicious Deserts had. They paid $17,000 per year or $1,416.66 per month for rent. All other expenses were variable costs. Question #2: What was the Total Variable Cost of running this business? Answer: $____________ Clue: Add up Cost of Goods Sold, Total Operating Expenses (less Rent), Income Tax Expense and include the write-off losses from Sales Discounts & Wedding Cancellations. Question #3: Assuming that Delicious Deserts sold 150 cakes during Q1, 300 cakes during Q2, 450 cakes during Q3, and 475 cakes during Q4, what was the Total Revenue during each quarter assuming the prices were: Q1 - $275 per cake, Q2 - $240 per cake, Q3 - $180 per cake and Q4 - $170 per cake? Q1 - Total Revenue = $ Q2 - Total Revenue = $ Q3 - Total Revenue = $ Q4 - Total Revenue = $

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Related questions

Question

Please examine the profit and loss statement on the next page, then answer the questions on pages 4 through 6.

Delicious Deserts, Incorporated
Income Statement For The Year Ending December 31, 2012

Revenues

Gross Sales....................................................................$275,000
Less: Sales Discounts ..................................................$ 2,500
Less: Returns (Cancelled Weddings)...........................$ 2,000
Net Sales...............................................................................................$270,500

Cost of Goods Sold

Beginning Inventory (January 1).................................$ 18,000
Cost Of Ingredients To Bake Cakes............................$109,500
Total Cost of Goods For Sale......................................$127,500
Less: Ending Inventory December 31.........................$ 15,000
Cost of Goods Sold..............................................................................$112,500

Gross Profit.....................................................................................................$158,000

Operating Expenses
Selling Expenses
Sales Commissions........................................$ 31,000
Advertising...................................................$ 16,000
Other Selling Expenses (Internet).................$ 18,000
Total Selling Expenses...............................................$ 65,000

General and Administrative Expenses
Professional & Office Salaries.................................$ 20,500
Utilities....................................................................$ 5,000
Office Supplies........................................................$ 1,500
Bank Interest Paid on Loans....................................$ 3,600
Insurance.................................................................$ 2,500
Rent (Fixed Cost)....................................................$ 17,000
Total General & Administrative Expense.............................$ 50,100
Total Operating Expenses..................................................$115,100

Net Profit Before Taxes..............................................................................$ 42,900
Less: Federal/State/Local Taxes................................................................$ 10,725
NET PROFIT.............................................................................................$ 32,175

Question #1:
What was the Total Fixed Cost of running this business?

Free Answer:
The rent was the only fixed cost that Delicious Deserts had. They paid $17,000 per year or $1,416.66 per month for rent. All other expenses were variable costs.

Question #2:
What was the Total Variable Cost of running this business?

Answer: $________________________________________

Clue:
Add up Cost of Goods Sold, Total Operating Expenses (less Rent), Income Tax Expense and include the write-off losses from Sales Discounts & Wedding Cancellations.

Question #3:
Assuming that Delicious Deserts sold 150 cakes during Q1, 300 cakes during Q2, 450 cakes during Q3, and 475 cakes during Q4, what was the Total Revenue during each quarter assuming the prices were: Q1 - $275 per cake, Q2 - $240 per cake, Q3 - $180 per cake and Q4 - $170 per cake?

Q1 - Total Revenue = $____________________________

Q2 - Total Revenue = $____________________________

Q3 - Total Revenue = $____________________________

Q4 - Total Revenue = $____________________________

The "A" student did a quarterly cost breakdown analysis for Delicious Deserts. A month-to-month analysis would have been better, but the owners just wanted a quick quarterly analysis. Q1 = 150 cakes sold, Q2 = 300 cakes sold, Q3 = 450 cakes sold and Q4 = 475 sold.

Quantity Sold	0	150	300	450	475
Demand/Price	$275	$275	$240	$180	$170
MR		$275	$205	$ 60	($ 10)
ATC		$238	$207	$153	$151
MC		$200	$175	$ 47	$283

TR		$41250	$72000	$81000	$80750
TC		$35750	$62000	$69000	$76075
Net Profit	$ 5500	$10000	$12000	$ 4675

Question #5

What is the MC=MR Profit Maximization point? What quantity should Delicious Deserts be producing at 'and' what price should they be charging to maximize their profits?

Question #6
Why isn't it a good idea for them to produce and sell as many cakes as they can? Is it more profitable to sell less cakes at this current stage of their business?

Question #7
Do you have any other recommendations for Delicious Deserts to increase their revenues, profits, market share, and client retention?