Plainfield Bakers Inc. Manfacturres and sells a popular line of fat –free cookies under the name Aunt May’s Cookies . The process plainfield uses to manufacture the cookies is labor intensive it relies heavily on direct labor .Last year Plainfield sold 300,000 dozens of cookies at $2.50 per dozen .variable cost at the level of production totaled $1.50 per dozen ,and fixed cost for the year totaled $150,000.
Prepare a contribution margin income statement for last year.
Calculate the company’s contribution margin ratio and breakeven point in sales units
Plainfield’ Direct labor rate is going to go $0.40 a dozen next year, assuming that the selling price stays at $ 2.50 a dozen calculate next years contribution margin and break even point in sales units.
Plainfield’s management is thinking about automating the production process ,a change that would reduce variable cost by $0.60 a dozen but would raise fixed costs by $150,000 a year.. If the company undertakes the automatic project how would it contribution margin and breakeven point in sales unit be affected?
Assuming that Plainfield s dose go ahead with the automatic project (see requirement D), how many cookies will the company have to sell at $2.50 dozen to earn the same income last year?
What are some of the nonfinancial aspect of the automatic decision that Plainfield management should considered when deciding whether to embark on the automotive project or not.
