Business

Profile
Albay, Kristina
Lacson, Joceleen
Naldoza, Rominna
Noro, Aljerico
Ubas, Given
The Cookie Project
• Nature: Manufacturing/Baking
• Products: Chocolate Chip Cookies
• Target Market: Public (4 years old
and above)
• Packaging: Disposable plastic
containers
• Promotion: Social media
Classification of Costs
 Monthly and Per Unit Costs

Note:
- Direct labor cost can also be calculated as Php 300 per hour
- VMOH cost can also be calculated as Php 221.9626168 per hour
 Total Costs for the Year
(60,000 units produced)

Manufacturing Cost
 Total Costs for the Year
(60,000 units produced)

Non-Manufacturing Cost
Income Statement
Contribution Margin & Ratio
Break-even in Unit Sales: Equation Method

• Profit = CM ratio x Sales – Fixed expenses

• P0 = P44.5 x Q – P948,000
0 + 948,000 = 44.5 (Q)
948,000 = 44.5(Q)

Q = 21,304 units
 Break-even in Peso Sales: Equation Method

• Profit = CM Ratio x Sales – Fixed expenses

• P0 = 24.72% x Sales – 948,000

24.72% x Sales = 948,000
Sales = 948,000 / 24.72%

Sales = P3,834,951.456
 Break-even Units and Peso:
The Percentage Method

• BE% = FE/CM x 100%

BE% = P948,000/P2,670,000 x 100% = 35.506%

The Cookie Project needs 35.506% of its current sales in order to break-even.
 Target Profit Analysis:
Equation Method for the Quantity

• Target profit: P1,200,000

P1,200,000 = 44.5 x Q – P948,000

44.5 x Q = P1,200,000 – P948,000
Q = (P1,200,000 + P948,000) / 44.5

Q = 48,270 units
 Target Profit Analysis:
Equation Method for the Sales (P) Required

• Sales volume target = P1,200,000

1,200,000 = 24.72% x Sales – 948,000

24.72% x Sales = 1,200,000 + 948,000
Sales = (1,200,000 + 948,000) / 24.72%

Sales = P8,689,320.388
 Target Profit Analysis:
The Percentage Method

• Target Profit%

= 948,000 + 1,200,000/1,200,000 x 100%

= 179%
• The Cookie Project requires 179% of
its current sales in order to obtain the
target profit.
 The Margin of Safety
• Margin of Safety in Pesos • Margin of Safety in Units
= Total sales – Break-even sales
= MOS / price of each unit
= 8,689, 320. 388 – 3,834,951.456
= 4,854,368.932 / 180
= 4,854,368.932
= 26,968.72 units
• Margin of Safety in Percentage
= 3,834,951.456 / 8,689,320.388
= 44.134%
 Operating Leverage
• Degree of Operating Leverage
= Cont. Margin/Net Operating Income
= 2,670,000/1,722,000
= 1.55
Unit Cost Computation
Absorption Costing
Variable Costing
 Sales Budget
• Preparation of budget for the quarter ending September 30
July 4,500 units
August 6,000 units
September 5,500 units
October 5,000 units
November 4,000 units

Selling Price is at Php 180 per unit

 Sales Budget
• Total budgeted sales and expected cash collections

Assumptions:
• 90% collected in the month of sale
• 10% collected in the month following sale
• June 31 accounts receivable balance of Php 90,000
will be collected in full
Expected Cash Collections
 Production Budget
• Assumptions:
- ending inventory is equal to 10% of the following month’s budgeted sales in units
- on June 31, 450 units were on hand
 Direct Materials Budget
• Assumptions
- seven pounds of material are required per unit of product
- materials on hand by the end of the month must be 10% of the ff month’s production
- material cost is at Php 10 per pound. On June 31, 3,255 pounds of material are on hand
Expected Cash Disbursements for Materials

• Assumptions:
- payment of purchases: 50% month of purchase, 50% month ff purchase
- June accounts payable balance is Php 172,200
 Direct Labor Budget
• Assumptions:
- each unit requires 0.1 hrs (6 minutes) of direct labor
- hourly wage rate is at Php 300/hr
- for the quarter, the DL workforce will be paid for a minimum of 530 hrs per month
Manufacturing Overhead Budget
Ending Finished Goods Inventory Budget
Selling and Administrative Expense Budget
 Cash Budget
• Assumption: July 1 has a cash balance of Php 100,000
Budgeted Income Statement
 Flexible Budget
• The Cookie Project bases its budgets on the activity measure customers served. During December,
the company planned to serve 4500 customers. The company has provided the following data
concerning the formula it uses in its budgeting:
Planning Budget
The Cookie Project’s actual results
compared with the Planning Budget
 Performance Measurement

• The Cookie Project reports the following:

Net Operating Income Php 1,722,000
Average Operating Assets Php 4,305,000
Sales Php 10,800,000
Operating Expenses Php 1,921,449.767
 Ne t o pe rating inc o me
ROI =
Ave rag e o pe rating a s s e ts

ROI = 1,722,000 / Turnover = 10,800,000 / 4,305,000

4,305,000
Turnover = 2.50871
ROI = 0.4 * 100
ROI = 40%

Margin = 1,722,000 / 10,800,000

Margin = 0.15944
Assume that company will invest in a baking equipment that
would require an amount of Php 600,000 this would increase the
sales by Php 435,000, and additional operating expenses of Php
210,000.

• The Cookie Project reports the following:

Net Operating Income Php 2,322,000
Average Operating Assets Php 4,305,000
Sales Php 11,235,000
Operating Expenses Php 2,231,450
ROI = Margin x Turnover
• Residual Income = 2,322,000 - (4,305,000 x
15%)
Residual Income = 2,322,000 – 645,750
Residual Income = 1,676,250
At the end of five years the working capital will be released
and may be used elsewhere by The Cookie Project.
The Cookie Project uses a discount rate of 10%. Should the
contract be accepted?