ACCT 6321 Twelve months ago, Samson opened a coffee shop

| June 13, 2018

The Judge’s1The Judge’s BestTwelve months ago, Samson opened a coffee shop, The Judge’s Best, in Grace Medical Village’s formergift shop. Samson believed that he had the knowledge and understanding to make a success of this newbusiness. He produced a quality product that people needed, priced the product to be very competitive,and selected a great location in a high-traffic area of the medical village.Material CostsThe Judge’s Best uses a specialty brand of Yirgacheffe 1 coffee beans costing $6.60 per pound. Eachpound of coffee beans produces 256 ounces of coffee. Coffee is sold in three sizes: a small cup holding 8ounces, a medium cup holding 10 ounces, and large cup holding 12 ounces.The cups needed to serve the coffee cost $.06 for the small cup, $.07 for the medium cup, and $.08 for thelarge cup. Lids cost $.04 per cup and are the same regardless of the cup size. Sleeves cost an additional$.05 per cup. On average, sugar and cream cost $.03 per cup for small cups, $.04 for medium cups, and$.05 for large cups.Labor CostsThe Judge’s Best is open 12 hours each day, 7 days a week (365 days per year), and is staffed with threeemployees during the morning shift (7:00 a.m.-11:00 a.m.), two employees from 11:00 a.m. until 3:00p.m., and three employees from 3:00 p.m. to 7:00 p.m. Labor is fixed cost, because the employees arepaid regardless of whether coffee is sold. Samson worked 60 hours each week, on average, and was paida salary of $42,000 during the first year of operations. Fringe benefits for Samson, including healthinsurance and payroll taxes, accounted for an additional $10,000 of costs for the company. Part-timeemployees worked an average of 24 hours each week and were paid $15.00 per hour. Payroll taxes andother costs $1.00 per hour for part-time employees. As shown in the following table, part-time employeesworked from 656 hours to 727 hours each month:MonthPart-time EmployeeMonthLabor HoursPart-time EmployeeLabor HoursJanuary722July727February656August727March727September705April705October727May727November705June705December7271Yirgacheffe is pronounced as “Yir ga tchef A” with emphasis on the 3rd syllable; or authors heard locals (i.e., Yirgacheffe Ethiopians) pronounce the first syllable as "year" butwith a slight roll of the "r" and the [third] syllable as a long "a." So, it came out like "Year-r-r-gah-CHEFF-ay" (Coffee Forum, 2004).The Judge’s2Overhead CostsDuring the first year of operations, the medical village charged rent of $2,000 per month. As part of therental cost, the medical village provided furniture and fixtures for the shop, as well as nightly cleaningservices. Samson leased a drip coffeemaker, refrigerator, coffee grinder, scale, and cash register for $150per month, total. Samson paid directly for his utilities (electricity and water). The costs of electricityincluded the costs of heating and cooling the shop as well as the costs of running the electric appliances(refrigerator, coffeemaker, etc.).For the first 12 months of operations, utility expenses were as follows:MonthUtility ExpenseJanuary$472February$510March$524April$460May$440June$460July$452August$430September$535October$570November$580December$600Total$6,033Selling and Administrative CostsSamson incurred $200 a month in accounting fees and spent $500 on various promotional and advertisingmaterials during the year. He also paid $1,000 for liability insurance.Sales RevenueDuring the first year of operations, Samson set the shop’s prices to be slightly lower than theircompetitors’. The Judge’s Best sells a small cup of coffee for $1.75, a medium cup for $2.35, and largecup for $2.75. Sales revenue was as follows:1Yirgacheffe is pronounced as “Yir ga tchef A” with emphasis on the 3rd syllable; or authors heard locals (i.e., Yirgacheffe Ethiopians) pronounce the first syllable as "year" butwith a slight roll of the "r" and the [third] syllable as a long "a." So, it came out like "Year-r-r-gah-CHEFF-ay" (Coffee Forum, 2004).The Judge’sMonth3Sales in Cup of CoffeeJanuary9,300 Cups*February9,800March10,850April9,500May9,300June9,000July8,800August8,600September11,000October11,620November12,000December12,400*Coffee sales average 10% small cups (8 ounces), 50% medium cups (10 ounces), and 40% large cups(12 ounces) (Sawyer et al., 2013).RequirementsPart I1. Calculate the cost of coffee beans per ounce of coffee sold.2. Calculate the cost of cups, lids, sleeves, cream, and sugar per unit for small, medium, and largecups of coffee and in total.3. Calculate the total labor costs for the year4. Prepare an income statement for The Judge’s Best for the last year. You can assume that there areno inventories on hand at the end of the year. (All coffee and supplies purchased during the yearare consumed.)5. Determined whether the costs incurred by The Judge’s Best are fixed, variable (with respect tonumber of cups of coffee sold), or mixed.Requirements ContinuePart II1Yirgacheffe is pronounced as “Yir ga tchef A” with emphasis on the 3rd syllable; or authors heard locals (i.e., Yirgacheffe Ethiopians) pronounce the first syllable as "year" butwith a slight roll of the "r" and the [third] syllable as a long "a." So, it came out like "Year-r-r-gah-CHEFF-ay" (Coffee Forum, 2004).The Judge’s46. Use regression analysis and the high/low method to calculate the monthly fixed cost and thevariable component of the utility expenses incurred by The Judge’s Best. Use cups of coffee soldas the independent variable and utility expense as the dependent variable in your regressionanalysis. After calculating both numbers, round your final answer to two decimal places.7. Compare the regression results with the high/low results. Which model would you suggest?8. Calculate the contribution margin earned for each product (round to three decimal places and theweighted-average contribution margin (round to four decimal places).9. Assume the sales mix given in the problem. What is The Judge’s Best’s break-even point interms of the number of cups of coffee sold during the year?10. Samson is contemplating adding a new 20-ounce product for the coming year and discontinuingsales of the small 8-ounce cup. The new cup, lid, and sleeve cost the same as the 12-ounce cup,but cream and sugar is expected to cost $.06 per cup instead of $.05 per cup. The new extra-largecup would be priced at $3.30. Samson anticipates that the new sales mix would be 50% for the10-ounce cup, 30% for the 12-ounce cup, and 20% for the new 20-ounce cup. Assume thatmaterial, labor, and overhead costs remain the same in the upcoming year. How would thischange in sales mix affect the company’s break-even point?11. Samson would like to increase sales and provide superior customer service in the second year ofoperations so that he may raise his salary to $70,000 (not including $15,000 of fringe benefits)while reducing his workload to 40 hours per week with two paid weeks of vacation during theyear. Reducing his workload will require increasing the number of hours worked by part-timeemployees by 1,080 hours per year. Assume the introduction of the extra-large cup and the newsales mix as discussed in requirement 10. What level of annual sales would be required in orderfor Samson to reach his increase in sales goal? What does his customer service goal suggestabout a change in managerial accounting and control systems?12. Write a two page analysis (i.e., executive summary) and discuss whether you think Samson willbe able to reach his sales and service goals during the second year of operations (Remember, allwritten assignments must be in APA style [i.e., your analysis should include Title, Content,Appendix—depicting your computations, and Reference Pages]).1Yirgacheffe is pronounced as “Yir ga tchef A” with emphasis on the 3rd syllable; or authors heard locals (i.e., Yirgacheffe Ethiopians) pronounce the first syllable as "year" butwith a slight roll of the "r" and the [third] syllable as a long "a." So, it came out like "Year-r-r-gah-CHEFF-ay" (Coffee Forum, 2004).

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