Baby Boom, Inc.
You are a new graduate fromMorgan State University, and you just got the job of a lifetime at the New Yorkoffice of Baby Boom, Inc., one of the giants manufacturing firms in NorthAmerica, which bottles and distributes baby food.Yesterday, the management accountant (your immediate supervisor), Bridgette Trainor,set up an appointment for you to meet with her today. You could not sleep lastnight because you have been concerned about your first ever job assignment at BabyBoom, Inc. You certainly would like to make a good first impression as a recentgraduate and do your best efforts to retain your dream job in the Big Apple.You then have decided to review the materials you have covered in ACCT 202 fromchapter 19 to chapter 24. A glance at the cost accounting materials listed inthe Principles of Accounting II course did boost your confidence and reenergizeyour enthusiasm to work on meeting or exceeding Mr. Trainor’s expectations.
Ms. Trainorthen welcomed you and discussed with you your new job’s duties andresponsibility. You noticed that yourjob duties include doing some financial as well as managerial accounting functions,which involve preparing cost-volume- analysis report, detailed financialstatements analysis by the end of each year, and providing recommendations onthe firm’s solvency, liquidity and profitability. Ms. Trainor then presented toyou some information about production and sales figures and asked you toprepare a detailed report to help her in planning the target level ofprofitability and assess the current financial figures of the firm. Baby Boom Inc. bottles and distributes Kido, a baby foodformula. The bottle is sold for 50 cents per 16-ounce bottle to retailers, whocharge customers 79 cents per bottle. For the year 2015, Ms. Trainor estimatesthe following revenues and costs for year 2016.
Budgeted estimates for 2016
Beloware financial data ofBaby BoomInc.andHappy Feet, Inc., for the current year2015 (in millions).
Baby Boom Inc.
Happy Feet, Inc.,
Income Statement Data
Cost of goods sold
Selling and administrativeexpenses
Other income (expense)
Income tax expense
Balance Sheet Data
Total stockholders’ equity
Total liabilities andstockholders’ equity
Total stockholders’ equity
Average net receivables
Net cash provided by operatingactivities
a. Prepare the Cost-Volume-Profitincome statement for 2012 based on Ms. Trainor’s estimates.
b. Computethe break-even point in (1) units and (2) dollars.
c. Computethe contribution margin ratio and the margin of safety ratio. Give Ms. Trainor some advice on how to usethese ratios in cost management planning.
d. Mr. Trainortold you that the top management aspires to achieve net income of $237,400 nextyear. Based on this information, what are the sales dollars required to earnthe target net income?
e. Calculatethe financial ratios of solvency, profitability and liquidity and giverecommendations to Ms. Trainor about the current financial ratios of Baby BoomInc. compared to its rival firm, Happy Feet, Inc.