MIDWEST ICE CREAM COMPANY

A Case Study

Presented By:

Dixie Diana V. Fernandez

Allan Pleno

Step 1

Establishing Standars for Selling Price, Variable Expenses, and

Marginal Contribution Per Gallon
Regular

Item
Dairy Ingredients
Sugar
Flavorings
Production
Warehouse
Transportation
Total Manufacturing
Advertising
Delivery
Total Marketing
Total Variable Cost
Selling Price
Marginal Contribution/gallon
before packaging
Packaging
Marginal Contribution/gallon

One-Gallon
Paper
Container

Premium

One-Gallon Two-Gallon
Plastic
Paper
Container
Container

One-Gallon
Plastic
Container

0.530
0.150
0.100
0.100
0.060
0.020
0.960
0.060
0.040
0.100
1.060
1.500
0.440

0.530
0.150
0.100
0.160
0.080
0.025
1.045
0.060
0.040
0.100
1.145
1.700
0.555

0.530
0.150
0.105
0.125
0.070
0.020
1.000
0.060
0.040
0.100
1.100
1.450
0.350

0.790
0.150
0.120
0.160
0.080
0.025
1.325
0.060
0.040
0.100
1.425
2.400
0.975

0.100
0.340

0.250
0.305

0.085
0.265

0.250
0.725

Step 2

Ice Cream Sales Forecast in Gallons

One-gallon paper
One-gallon plastic
Two-gallon paper
One-gallon premium
Total

January
100,000
50,000
225,000
120,000
495,000

February
100,000
50,000
225,000
120,000
495,000

December
100,000
50,000
225,000
120,000
495,000

Total
1,200,000
600,000
2,700,000
1,440,000
5,940,000

Step 3

Budgeted Expenses
January
Manufacturing expense
Labor
Equipment Repair
Depreciation
Taxes
TOTAL
Delivery expense
Salaries- general
Salaries- drivers
Helpers
Supplies
TOTAL
Administrative Expense
Salaries
Insurance
Taxes
Depreciation
TOTAL
Selling Expense
Repairs
Gasoline
Salaries
TOTAL

February

December

Total

7,333.00
3,333.00
6,667.00
3,333.00
20,666.00

7,333.00
3,333.00
6,667.00
3,333.00
20,666.00

7,333.00
3,333.00
6,667.00
3,333.00
20,666.00

88,000.00
40,000.00
80,000.00
40,000.00
248,000.00

10,000.00
10,667.00
10,667.00
667.00
32,001.00

10,000.00
10,667.00
10,667.00
667.00
32,001.00

10,000.00
10,667.00
10,667.00
667.00
32,001.00

120,000.00
128,000.00
128,000.00
8,000.00
384,000.00

5,167.00
1,667.00
1,667.00
833.00
9,334.00

5,167.00
1,667.00
1,667.00
833.00
9,334.00

5,167.00
1,667.00
1,667.00
833.00
9,334.00

62,000.00
20,000.00
20,000.00
10,000.00
112,000.00

2,667.00
5,000.00
5,000.00
12,667.00

2,667.00
5,000.00
5,000.00
12,667.00

2,667.00
5,000.00
5,000.00
12,667.00

32,000.00
60,000.00
60,000.00
152,000.00

Step 4

The Profit Plan

Contribution
Marginal
Gallons
Contribution Sold/Month
One-gallon paper
One-gallon plastic
Two-gallon paper
One-gallon premium
Total Contribution
Fixed Cost
Manufacturing
Delivery
Administrative
Selling
Total Fixed Cost
Operating Profit
Income Tax
Net Profit

0.34
0.305
0.265
0.725

10,000
50,000
225,000
120,000

January

February

December

Total

34,000.00
15,250.00
59,625.00
87,000.00
195,875.00

34,000.00
15,250.00
59,625.00
87,000.00
195,875.00

34,000.00
15,250.00
59,625.00
87,000.00
195,875.00

408,000.00
183,000.00
715,500.00
1,044,000.00
2,350,500.00

20,667.00
32,000.00
9,333.00
12,667.00
74,667.00
121,208.00
60,604.00
60,604.00

20,667.00
32,000.00
9,333.00
12,667.00
74,667.00
121,208.00
60,604.00
60,604.00

20,667.00
32,000.00
9,333.00
12,667.00
74,667.00
121,208.00
60,604.00
60,604.00

248,000.00
384,000.00
112,000.00
152,000.00
896,000.00
1,454,500.00
727,250.00
727,250.00

Exhibit B

Manufacturing Cost of Goods Sold

January

Dairy Ingredients
Sugar
Flavorings
Warehouse
Production
Transportation
Subtotal, variable
Labor
Equipment,repair
Depreciation
Taxes
Subtotal, fixed
Total

Actual
312,744.00
82,304.00
56,290.00
38,770.00
70,300.00
11,514.00
571,922.00
7,300.00
4,065.00
6,667.00
3,333.00
21,365.00
593,287.00

Budget
299,000.00
78,000.00
55,025.00
37,350.00
69,225.00
11,325.00
549,925.00
7,329.00
3,333.00
6,667.00
3,333.00
20,662.00
570,587.00

Exhibit A

Contribution Analysis
January
Actual
Gallon
Sales
One-gallon paper
One-gallon plastic
Two-gallon paper
One-gallon premium
Total

Standard
Contribution
per gallon

90,000
95,000
245,000
90,000
520,000

Forecast (Step 2) 495,000 gallons

Forecasted Contribution (at 495,000 gallons)
Over (under) forecast

0.340
0.305
0.265
0.725

Total Standard
Contribution
30,600.00
28,975.00
64,925.00
65,250.00
189,750.00

195,875.00
(6,125.00)

Saled of Gallons
Marginal Contributions
Average Contribution/Gallon
Difference

Planned
Actual
495,000
520,000
195,875
189,750
0.3957
0.3649
.0308 U

Variance due to Volume:

25,000 gallons * .3957
=

(9,892.00) U

Variance due to Mix:

520,000 gallons * .0308

16,017.00 F

Total Variance

(6,125.00) U

Exhibit C

Earnings Statement
January
Actual

Budget

Total Ice Cream Sales

867,750.00

867,850.00

Mfg. Cost of Goods Sold

593,287.00

570,587.00

Delivery expense

52,804.00

52,804.00

Advertising Expense
Packaging Expense

31,200.00
76,075.00

31,200.00
76,075.00

Selling Expense

12,667.00

12,667.00

9,334.00

9,334.00

775,367.00

752,667.00

Profit (loss)

92,383.00

115,183.00

Provision for Income taxes

46,192.00

Net Profit (loss)

46,191.00

Administrative Expense
Total Expense

Actual Profit before Taxes

Original Profit Forecasts
Revised Profit Forecasts

=
=
=

Variance due to Volume and Mix =

Variance due to operations
=
Total Variance
=

92,383.00
121,208.00
115,083.00
121,208.00 115,083.00 121,208.00 -

115,083.00 =
92,383.00 =
92,383.00 =

(6,125.00) U
(22,770.00) U
(28,825.00) U