Mod 2 CA - Touro University International ACC 501...

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Touro University International ACC 501 – Accounting for Business Decision Making Case Assignment Module 2 Huffnpuff Glassworks Coordinating Professor: Dr. Paul Watkins Core Faculty: Dr. Robert Muretta
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Introduction This case assignment will examine the finances of Harry Huffnpuff’s glassblowing business. Given back ground financial information on the operations of the business I will construct income statements in both traditional and contribution margin format. Mr. Huffnpuff’s breakeven point will be calculated, options for changing his business practices will be presented and finally after analysis of the options some recommendations’ will be provided. Background Harry Huffnpuff is a very busy person. He owns and runs his own glass blowing company and employs one other part time worker. Harry produces his highly in demand products to upper scale art galleries where they are sold. His products are so in demand that there is a nine month back log for his work. In a 52 week year, Harry spends 40 weeks producing his glassware, 10 weeks visiting art galleries and two weeks on vacation. Harry believes he is working as fast and hard as possible yet he thinks that he should be making more money than he actually does. Breakdown of Revenue and Expenses Harry produces glassworks and bundles his products for ease of sale. Harry sells a “bundle” or unit for $680 dollars. Throughout the 2000 fiscal year he sold 5 bundles a week for the 40 weeks of production. This accounted for 200 bundles sold at $680 for $136,000 in sales. The only factor labor cost is Sam at $15/hr averaging 20hrs per week over the 40 week production period resulting in $12,000 in wages. Since Sam’s time was spent equally on processing the bundles for shipment and actually finishing the products, his labor is split between fixed and variable costs under the CM income statement. Supply costs are at $112,000 ($2,800 @ 40 weeks) with another $16,000 ($80 per bundle @ 200 bundles per year) for packing and 2
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shipping. The 10 weeks that Harry spends $6,050 visiting galleries each year advertising, promoting and marketing his wares. Below are two income statements based on Harry’s business finances, one is in the traditional format (fig. 1) and the other is in the contribution income format (fig. 2). From the data compiled in the statement it is easy to see why Harry feels that he not making the money he feels he should be—he is operating in the red or negative net income. Harry most certainly is not reaching his target of $25,000 after a 28% tax deduction. Traditional Income Statement FY 2000 Contribution Margin (CM) Income Statement FY 2000 Revenue $136,000.00 Sales: $136,000.00 Less operating expenses Less Variable Costs: Cost of goods $112,000.00 Cost of goods sold $112,000.00 Gross profit $24,000.00 Packing $16,000.00 Less Operating Cost Processing Wages $6,000.00 Packing $16,000.00 Total Variable costs:
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This note was uploaded on 10/17/2010 for the course ACC 501 taught by Professor Davidwagner during the Spring '08 term at Touro University.

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Mod 2 CA - Touro University International ACC 501...

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