Each question refers to the same initial data. Treat each Partindividually. Ignore income taxes. Assume no beginning or endinginventories. Unless stated otherwise, all calculations and incomestatements should be based on a one-month period. Calculations andbackup should be completed and submitted in Excel. Use properContribution Income Statement formatting – example below. Analysiscan either be typed into cells in Excel (formatted to be easilylegible) or typed into a text box in Excel. One Excel file is to besubmitted for this case study. No additional files (Word documentsor otherwise) will be accepted or graded.

Contribution Margin Format Example:

Volume                                                                XX

Sales                                                                      XX

Variable Costs(Listed)                   XX

Variable Costs(Total)                     XX

ContributionMargin                      XX

Fixed Costs (Listed)     XX

Fixed Costs(Total)                          XX

OperatingIncome                          XX

Data for all questions:

Stuckie produces white school glue. Their glue bottles areprimarily sold at department stores across the country. The cost ofmanufacturing and marketing their glue, at their normal factoryvolume of 20,000,000 bottles of glue per month, is shown in thetable below. Stuckie sells their glue bottles for $1.50 each.Stuckie is making a small profit, but they would prefer to increasetheir Operating Income.

Hint: Fixed costs are shown on a per-unit basis in the tablebased on normal volume. However, fixed costs as a total do notchange when volume changes, so you will need to determine totalfixed costs first.

                                                                                                   PerUnit                        Per Unit

Unit Manufacturing Costs:

                   VariableMaterials                          $0.30

                   VariableLabor                                                     $0.35

                   VariableOverhead                         $0.10

                   FixedOverhead                                                  $0.25

Total Unit Manufacturing Costs:                                                          $1.00

Unit Marketing Costs:

                   Variable MarketingCosts              $.05

                   Fixed MarketingCosts                   $.20

Total Unit MarketingCosts:                                                                                        $.025

Questions:

1. Stuckie wants to understand their basic starting financialdata.

1. What is their monthly fixed cost, variable cost per bottle ofglue, and contribution margin per bottle of glue? Show yourcalculations for each.
2. Prepare a one-month Contribution Margin Income Statement forthe company using the given financial data at their normal factoryvolume. Include line items for each type of cost as well assubtotals for the variable and fixed costs.
3. What is the break-even point in units? (Show yourcalculations.)
4. What is the break-even point in sales dollars? (Show yourcalculations.)
5. Using a one-month Contribution Margin Income Statement, verifythat your calculated break-even volume results in Operating Incomeof Zero. (Prepare the entire Contribution Margin statement at thebreak-even level.)
6. An office supply chain has offered to purchase 10,000,000bottles of glue (one time in one month) if the sales price waslowered to $1.25 per bottle for that one-time sale. (This specificsale is all or nothing – they will not purchase less than10,000,000 bottles). Stuckie’s maximum capacity is 25,000,000units, and this special sale would not impact the sales price ofStuckie’s normal sales to their usual customer base.
7. Prepare a monthly contribution margin income statement to showwhat would happen if Stuckie’s accepted the special sale to theoffice store chain and didn’t sell any other glue that month.
8. Prepare a monthly contribution margin income statement to showwhat would happen if Stuckie’s accepted the special sale to theoffice store chain and produced at maximum capacity to sell as muchglue as possible to their normal customers.
9. Compare Stuckie’s normal contribution margin income statement(from question 1) to the options available through the officesupply chain (2A & 2B). Should Stuckie’s accept the specificsale from the office supply chain? Why or why not?

Question 3:

Slime-making is a current fad, and this is creating a demand forlarger bottles of glue. Stuckie’s would like to offer largerbottles of glue to their customers (to support slime making). Inorder to have a second bottle size option, Stuckie’s would need toinvest in a new bottling line. This would increase fixed overheadcosts by $4,000,000 per month. All variable costs (materials,labor, overhead & marketing) would increase 5X (500%) becauseof the bigger bottles and additional glue put into each bottle.Market research estimates that 5,000,000 of the larger bottles ofglue could be sold per month.

A) If Stuckie’s ONLY sells these new, larger bottles of glue,what is the minimum sales price per bottle they could accept andstill have the same operating income (as question 1)? Show yourresults in a contribution margin income statement.

B) If Stuckie’s can sell the larger bottles of glue for $10each, what is the break-even point in units for the larger bottlesof glue? (Show your calculation.)

C) If Stuckie’s can sell the larger bottles of glue for $10each, what is the break-even point in sales dollars for the largerbottles of glue? (Show your calculation.)

D) If the slime-making fad goes away, and Stuckie’s needs to goback to selling only the small bottles of glue, what would be theirmaximum net operating income (based on maximum capacity and theadditional factory investment)? Show your results in a contributionmargin income statement.

Question 4:

Stuckie’s is thinking of cutting costs by switching to adifferent material supplier. Their variable material costs woulddecrease by 50% (only variable material costs – not all variablecosts). The quality of the ingredients is lower, so Stuckie’sestimates that their additional fixed scrap costs related to theingredient quality would be $1,000,000 per month. They would notchange the pricing of their glue bottles.

Note: Use the initial data provided for all questions. Ignorethe special sale and larger bottle data from Parts 2 & 3.

A) Prepare a revised monthly Contribution Margin IncomeStatement to include the revenues, costs and profits of using thedifferent raw material (ingredient) supplier. (At normalvolume.)

B) What is the break-even point in units? (Show yourcalculations.)

C) What is the break-even point in sales dollars? (Show yourcalculations.)

D) If their sales end up decreasing because of the change inquality, how much of a reduction in sales (dollars and units) couldStuckie’s handle and still keep their net operating income the sameas before the supplier change? Show your data in a ContributionMargin Income Statement.

E) What are the potential impacts – both Qualitative andQuantitative – of the material supplier change? If you had to makethe decision of whether to switch suppliers or not, what would youdo? Why?