Using the information in Table MA.4, advise the marketing director on whether it
would be more beneficial to make fruit and nut bars rather than buy them in from
another company for £1.70 per bar. What other considerations need to be taken into
account?
Table MA.1 Volume chocolate bars
Selling price per bar £
Cocoa
grams per
bar
Sugar
grams per
bar
Milk
millilitres
per bar
Dark
80,000
2.00
170
30
0
Milk
140,000
1.80
130
40
30
White
60,000
2.00
0
70
130
Raw material costs
£4 per kg
£2 per kg
£1 per litre
Table MA.2
Indirect costs*
£k
Rent
18.2
Utilities
13.8
Factory administration
12.7
Marketing and sales
47.4
Administrative salaries
38.5
factory indirect costs are currently allocated on a blanket rate.
Packaging is estimated at £200 per 1,000 bars.
Direct labour costs are expected to be £10 per hour.
Table MA.3 Sales directorâs volume and price assumptions
Increase price
Decrease volume
Dark chocolate bars
10%
10%
Milk chocolate bars
5%
5%
White chocolate bars
No change
No change
Table MA.4 Fruit and nut: raw material costs
Per bar
Quantity
Cost
Cocoa, sugar, and milk
Assume 50% of milk bar
Fruit
50g per bar
£4 per kg
Nut
50g per bar
£8 per kg
Direct labour, packaging,
and factory overhead
Cost per bar: use same assumptions
as other chocolate bars
Sales revenue budget Dark milk white total Volume 80000 140000 60000 280000 selling price per bar 2 1,8 2 total sales revenue 160000 252000 120000 532000 Raw materials dark milk white total volume 80000 140000 60000 280000 cocoa per bar 0,17 0,13 0 0,3 total cocoa used 13600 18200 0 31800 cost per kg 4 4 4 4 total cocoa cost 54400 72800 0 127200 volume 80000 140000 60000 280000 sugar per bar 0,03 0,04 0,07 0,14 total sugar used 2400 5600 4200 12200 cost per kg 2 2 2 2 total sugar cost 4800 11200 8400 24400 volume 80000 140000 60000 280000 milk per bar 0 0,03 0,13 0,16 total milk used 0 4200 7800 12000 cost per kg 1 1 1 1 total milk cost 0 4200 7800 12000 Packaging dark milk white total volume per thousand 80 140 60 280 cost 200 200 200 200 total packaging cost 16000 28000 12000 56000 Direct labour dark milk white total volume 80000 140000 60000 280000 hours (volume/20) 4000 7000 3000 14000 per hour cost 10 10 10 10 total direct labourcost 40000 70000 30000 140000 Income statement sales revenue 532000 direct materials cocoa 127200 sugar 24400 milk 12000 163600 direct labour 140000 ackaging 56000 indirect costs rent 18200 utilities 13800 factry administration 12700 marketing and sales 47400 administrative salaries 38500 130600 Net income 41800 Management can assure themselves about the estimate by considering the market price and market survey. b) Analysis dark milk white total volume 80000 140000 60000 280000 weight 0,285714286 0,5 0,214285714 sales revenue 160000 252000 120000 532000 Direct materials: cocoa 54400 72800 0 127200 sugar 4800 11200 8400 24400 milk 0 4200 7800 12000 packaging 16000 28000 12000 56000 indirect costs 37314,28571 65300 27985,71429 130600 total costs 112514,2857 181500 56185,71429 350200 profit 47485,71429 70500 63814,28571 181800 net profit margin 0,296785714 0,279761905 0,531785714 0,341729323
Current profitability: dark milk white sales volume 80000 140000 600002 selling price/unit 2 1,8 2 Raw materials/unit cocoa 4/1000*170,*130,*0 0,68 0,52 0 sugar 2/1000*30,*40,*70 0,06 0,08 2,8 milk 0,1/1000*30,*130 0 0,03 0,13 R/Mat.Total 0,74 0,63 2,93 direct labour 1/20*â¬10 0,5 0,5 0,5 total direct costs 1,24 1,13 3,43 Contribution/unit 0,76 0,67 -1,43 total contribution sales*contn/unit 60800 93800 -85800 68800
Using the information in Table MA.4, advise the marketing director on whether it
would be more beneficial to make fruit and nut bars rather than buy them in from
another company for £1.70 per bar. What other considerations need to be taken into
account?
Table MA.1 Volume chocolate bars | Selling price per bar £ | Cocoa grams per bar | Sugar grams per bar | Milk millilitres per bar | |
Dark | 80,000 | 2.00 | 170 | 30 | 0 |
Milk | 140,000 | 1.80 | 130 | 40 | 30 |
White | 60,000 | 2.00 | 0 | 70 | 130 |
Raw material costs | £4 per kg | £2 per kg | £1 per litre |
Table MA.2 Indirect costs* | £k |
Rent | 18.2 |
Utilities | 13.8 |
Factory administration | 12.7 |
Marketing and sales | 47.4 |
Administrative salaries | 38.5 |
factory indirect costs are currently allocated on a blanket rate.
Packaging is estimated at £200 per 1,000 bars.
Direct labour costs are expected to be £10 per hour.
Table MA.3 Sales directorâs volume and price assumptions | ||
Increase price | Decrease volume | |
Dark chocolate bars | 10% | 10% |
Milk chocolate bars | 5% | 5% |
White chocolate bars | No change | No change |
Table MA.4 Fruit and nut: raw material costs | ||
Per bar | Quantity | Cost |
Cocoa, sugar, and milk | Assume 50% of milk bar | |
Fruit | 50g per bar | £4 per kg |
Nut | 50g per bar | £8 per kg |
Direct labour, packaging, and factory overhead | Cost per bar: use same assumptions as other chocolate bars |
Sales revenue budget | |||||
Dark | milk | white | total | ||
Volume | 80000 | 140000 | 60000 | 280000 | |
selling price per bar | 2 | 1,8 | 2 | ||
total sales revenue | 160000 | 252000 | 120000 | 532000 | |
Raw materials | |||||
dark | milk | white | total | ||
volume | 80000 | 140000 | 60000 | 280000 | |
cocoa per bar | 0,17 | 0,13 | 0 | 0,3 | |
total cocoa used | 13600 | 18200 | 0 | 31800 | |
cost per kg | 4 | 4 | 4 | 4 | |
total cocoa cost | 54400 | 72800 | 0 | 127200 | |
volume | 80000 | 140000 | 60000 | 280000 | |
sugar per bar | 0,03 | 0,04 | 0,07 | 0,14 | |
total sugar used | 2400 | 5600 | 4200 | 12200 | |
cost per kg | 2 | 2 | 2 | 2 | |
total sugar cost | 4800 | 11200 | 8400 | 24400 | |
volume | 80000 | 140000 | 60000 | 280000 | |
milk per bar | 0 | 0,03 | 0,13 | 0,16 | |
total milk used | 0 | 4200 | 7800 | 12000 | |
cost per kg | 1 | 1 | 1 | 1 | |
total milk cost | 0 | 4200 | 7800 | 12000 | |
Packaging | |||||
dark | milk | white | total | ||
volume per thousand | 80 | 140 | 60 | 280 | |
cost | 200 | 200 | 200 | 200 | |
total packaging cost | 16000 | 28000 | 12000 | 56000 | |
Direct labour | |||||
dark | milk | white | total | ||
volume | 80000 | 140000 | 60000 | 280000 | |
hours (volume/20) | 4000 | 7000 | 3000 | 14000 | |
per hour cost | 10 | 10 | 10 | 10 | |
total direct labourcost | 40000 | 70000 | 30000 | 140000 | |
Income statement | |||||
sales revenue | 532000 | ||||
direct materials | |||||
cocoa | 127200 | ||||
sugar | 24400 | ||||
milk | 12000 | 163600 | |||
direct labour | 140000 | ||||
ackaging | 56000 | ||||
indirect costs | |||||
rent | 18200 | ||||
utilities | 13800 | ||||
factry administration | 12700 | ||||
marketing and sales | 47400 | ||||
administrative salaries | 38500 | 130600 | |||
Net income | 41800 | ||||
Management can assure themselves about the estimate by considering the market price and market survey. | |||||
b) | Analysis | ||||
dark | milk | white | total | ||
volume | 80000 | 140000 | 60000 | 280000 | |
weight | 0,285714286 | 0,5 | 0,214285714 | ||
sales revenue | 160000 | 252000 | 120000 | 532000 | |
Direct materials: | |||||
cocoa | 54400 | 72800 | 0 | 127200 | |
sugar | 4800 | 11200 | 8400 | 24400 | |
milk | 0 | 4200 | 7800 | 12000 | |
packaging | 16000 | 28000 | 12000 | 56000 | |
indirect costs | 37314,28571 | 65300 | 27985,71429 | 130600 | |
total costs | 112514,2857 | 181500 | 56185,71429 | 350200 | |
profit | 47485,71429 | 70500 | 63814,28571 | 181800 | |
net profit margin | 0,296785714 | 0,279761905 | 0,531785714 | 0,341729323 |
Current profitability: | |||
dark | milk | white | |
sales volume | 80000 | 140000 | 600002 |
selling price/unit | 2 | 1,8 | 2 |
Raw materials/unit | |||
cocoa 4/1000*170,*130,*0 | 0,68 | 0,52 | 0 |
sugar 2/1000*30,*40,*70 | 0,06 | 0,08 | 2,8 |
milk 0,1/1000*30,*130 | 0 | 0,03 | 0,13 |
R/Mat.Total | 0,74 | 0,63 | 2,93 |
direct labour 1/20*â¬10 | 0,5 | 0,5 | 0,5 |
total direct costs | 1,24 | 1,13 | 3,43 |
Contribution/unit | 0,76 | 0,67 | -1,43 |
total contribution sales*contn/unit | 60800 | 93800 | -85800 |
68800 |