In the Perdue Companys very early years the founder, Arthur Perdue, crossbred the best available stock to provide farmers with better quality chicks. His son, Frank Perdue, made marketing history by successfully branding chicken with his family name, and upped the ante by developing his own breed of meatier chickens

Over the years Perdue Chicken Farms has continued their innovation by implementing the first-ever USDA Processed Verified Programs for their chicken products including "raised cage free" and "fed an all-vegetarian diet with no animal by-products."

Perdues consolidated sales last year exceeded $6 Billion and as they processed more than 649.000,000 (six hundred forty nine million) chickens.

The family of companies carrying the Perdue name has expanded beyond just breeding chickens for sale. In fact, Perdue just recently made an acquisition of a customer. With wings purchased from Perdue, the acquired company would make a variety of seasoned chicken wings, flash freeze them and sale them in bulk to restaurants.

Now known as the Wings Division, the recently appointed President, Mr. Chick N. Little has asked the division controller, Mr. Foghorn Leghorn and your team to prepare the Third Quarter budget for the Wings Division. The assumptions used in preparing the Operating Plan for the Divisions Third Quarter (July Sept) 2016 were:

Sales were 20,000 units in June. Forecasted sales in units are as follows: July, 21,000; August, 19,000; September, 20,000; October, 24,000. The product's selling price is $17 per unit and its total product cost is $14.35 per unit.

Company policy calls for a given month's ending finished goods inventory to equal 70% of the next month's expected unit sales. The June 30 finished goods inventory is 16,800 units, which does not comply with the policy.

Company policy calls for a given month's ending raw materials inventory to equal 20% of the next month's materials requirements. The June 30 raw materials inventory is 4,375 units (which also fails to meet the policy). The budgeted September 30 raw materials inventory is 1,980 units. A unit of raw materials cost $8 per unit. Each unit of material yields 2 finished units --- in other words finished unit requires 0.50 units of raw materials.

Each finished unit requires 0.50 hours of direct labor at a rate of $16 per hour.

Overhead is allocated based on direct labor hours. The predetermined variable overhead rate is $2.70 per direct labor hour. Depreciation of $20,000 per month is treated as fixed factory overhead.

Monthly general and administrative expenses include $9,000 administrative salaries and 0.9% monthly interest on the long-term note payable.

Sales representatives' commissions are 10% of sales and are paid in the month of the sales. The sales manager's monthly salary is $3,500 per month.

The company expects 30% of sales to be for cash and the remaining 70% on credit. Receivables are collected in full in the month following the sale (none is collected in the month of the sale).

All raw materials purchases are on credit, and no payables arise from any other transactions. One month's raw materials purchases are fully paid in the next month.

Dividends of $20,000 are to be declared and paid in August.

Income taxes payable at June 30 will be paid in July. Income tax expense will be assessed at 35% in the quarter and paid in October.

Equipment purchases of $100,000 are budgeted for the last day of September.

The minimum ending cash balance for all months is $40,000. If necessary, the company borrows enough cash using a short-term note to reach the minimum. Short-term notes require an interest payment of 1% at each month-end (before any repayment). If the ending cash balance exceeds the minimum, the excess will be applied to repaying the short-term notes payable balance.

The post-closing trial balance of the Wings Division at June 30, 2016 was:

Perdue, Inc Post-Closing Trial Balance 30-Jun-16
Account	Amount
Accounts payable	$ 51,400
Accounts receivable	249,900
Accumulated depreciation	240,000
Cash	40,000
Common stock	600,000
Equipment	720,000
Finished goods inventory	241,080
Income taxes payable	10,000
Long-term note payable	300,000
Raw materials inventory	35,000
Retained earnings	60,580
Short-term notes payable 24,000 All accounts had normal balances at June 30, 2016

The income statement for the Wings Division second quarter was:

Wings Division Income Statement For the Three Months Ended June 30, 2016
Sales	$ 1,462,500	75,000 units
Cost of Goods Sold Gross Profit	1,237,500	At current sales level includes $1.50 per unit in fixed mfg overhead.
	225,000
Sales Commissions	146,250	10% of sales
General & Admin Operating Income	300,000	Half of the general & admin exp is considered fixed
	$ ( 221,250)

PART I REQUIREMENTS

Perdues Senior VP of Operations, Ms. Red Hen, has ask your team to perform the following analysis of the new division using the second quarter results above:

***a. Prepare the income statement in a contribution margin format.

***b. What is the breakeven point in units?

***c. What is the breakeven point in dollars?

Draw a breakeven graph.

Assuming all G & A expenses are cut by 50%, Sales comm are cut to 5 %,and the COGS variable costs are reduced by 20% what will the new breakeven be in units?

Assuming the facts in E above how many units must be sold to earn a profit of $50,000.

Assuming the facts F. what is the margin of safety

Assuming the facts in F. what is the operating leverage

Show All Calculations

*** Part 01 (a), (b) and (c) are due via email to your student assistant at the end of class on Tuesday, 10/06. Failure to submit will result in no points for those specific parts of the case. You may change you the schedules for the hard copy submission without penalty.

PART 2 REQUIREMENTS

Prepare the following budgets and other financial information as required. All budgets and other financial information should be prepared for the third calendar quarter, except as otherwise noted below. Round calculations to the nearest whole dollar except per unit data: (Do not use Part 1 in completing Part 2)

Schedule

Sales budget.

Production budget.

Direct materials budget.

Direct labor budget.

5** Factory overhead budget which contains:

Total factory overhead for each month and the quarter

The factory wide predetermined ovhd rate per direct labor hour for the quarter

The per unit cost of each product cost category when combined equal the total per unit cost of a finished product.

Selling expense budget.

.

General and administrative expense budget.

8_a** Schedule of Cash Collections from Customers

8_b Cash budget.

Budgeted income statement for the entire quarter (not for each month separately).

Budgeted statement of retained earnings for the quarter.

11_a Budgeted balance sheet as of September 30, 2016.

11_b Show calculations of required to determine balance sheet amts on Sept 30.

** Schedules 5 and 8 (a) are due via email to your student assistant at the end of class on Tuesday, 10/13. Failure to submit will result in no points for those specific parts of the case. You may change you the schedules for the hard copy submission without penalty.

EXTRA CREDIT: 2 points all or nothing!

1. What was the name of the chicken made famous in a Perdue ad?

2. What was Frank Perdues 45 year project he introduced in an ad?

3. Who did the Chairman of Perdue go jogging with every morning per the TV ad?