Sorrentino Company Sorrentino Company, which has been inbusiness for one year, manufactures specialty Italian pastas. Thepasta products start in the mixing department, where durum flour,eggs, and water are mixed to form dough. The dough is kneaded,rolled flat, and cut into fettucine or lasagna noodles, then driedand packaged. Paul Gilchrist, controller for Sorrentino Company, isconcerned because the company has yet to make a profit. Sales wereslow in the first quarter but really picked up by the end of theyear. Over the course of the year, 717,500 boxes were sold. Paul isinterested in determining how many boxes must be sold to breakeven. He has begun to determine relevant fixed and variable costsand has accumulated the following per unit data: Price $0.95 Directmaterials 0.35 Direct labor 0.25 He has had more difficultyseparating overhead into fixed and variable components. Inexamining overhead-related activities, Paul has noticed thatmachine hour appear to be closely correlated with units in that 100boxes of pasta can be produced per machine hour. Setups areimportant batch-level activity. Paul also thinks that indirectlabor hour may be associated with the overhead expense, but thereis no evidence showing the relation. Currently, indirect labor houris scheduled to be 2000 hours per year. Paul has accumulated thefollowing information on overhead costs, number of setups, machinehours, and indirect labor hours for the past 12 months.
Month-- Overhead--Number of Setups-- Machine Hours-- IndirectLabor Hours
January-----$5,700------------ 18-----------------------595------------------------ 155
February---4,500--------------- 6-----------------------560------------------------- 135
March -----------4,890--------- 12------------------------575------------------------ 125
April -------------5,500--------- 15------------------------615------------------------- 200
May --------------6,320--------- 20-----------------------680------------------------- 240
June ------------5,100 ----------10-----------------------552------------------------- 183
July --------------5,532---------- 16----------------------630--------------------------- 205
August ---------5,409----------- 12---------------------600--------------------------- 115
September ------5,300--------- 11--------------------635---------------------------- 162
October ---------4,950-------- 12--------------------525--------------------------- 145
November --------5,350--------- 14-----------------593---------------------------- 185
December --------5,600--------- 14----------------615------------------------------- 150
Selling and administrative expenses, all fixed, amounted to$200,000 last year. In the second year of operations, SorrentinoCompany has decided to expand into the production of sauces to topits pastas. Sauces are also started in the mixing department, usingthe same equipment. The sauces are mixed, cooked, and packaged intoplastic containers. One jar of sauce is priced at $2 and required$0.65 of direct materials and $0.45 of direct labor. 60 jars ofsauce can be produced per machine hour. The production managerbelieves that with careful scheduling, he can keep the total numberof setups and total number of indirect labor hours (for both pastaand sauce) to the same number as used last year. The marketingdirector expects to increase selling expense by $30,000 per year topromote the new product and believes Sorrentino Company can sellthree boxes of pasta for every one jar of sauce. Required:
a)Calculate the number of boxes of pasta which must be sold tobreak even before the expansion into the production of sauces.
b)Now consider the production of sauces, calculate thebreak-even number of boxes of pasta and jars of sauce.
