​​​ Jelly & Tea Ltd makes and sells bubble tea added with jelly commonly known as "pearls". Currently, it purchases all the ingredients necessary to prepare the drinks, except for the jelly pearls which it makes using raw materials, a special cooker, and employing a worker solely for this task. Each cup of tea uses 10 jelly pearls. Data given below is for costs incurred in making and selling 100,000 and 300,000 cups of tea. Total operating costs (including cost of making jelly pearls) 100,000 cups 300,000 cups $ $ Prime Costs 120,000 360,000 Overhead costs 180,000 440,000 Total 300,000 800,000 Costs of making jelly pearls (for 150,000 cups) $ Direct materials 20,000 Direct wages 40,000 Total 60,000 DMSAF 2015 October Managerial Accounting Acc103 CA1 (Group Assignment) Page 2 of 4 When volume of production exceeds 200,000 cups, Jelly & Tea will have to employ an additional worker and invest in another special cooker to make the jelly pearls. This will result in the fixed overhead costs being doubled. There will be no change to the variable rate meant for Part A's answer. The business currently makes a profit of $50,000 by selling 150,000 cups of bubble tea a year. PART A (37 marks) Required: (i.) Calculate the following: 1) Variable cost per unit. (6 marks) 2) Fixed Cost for the volume of 150,000 units. (3 marks) 3) Total revenue from selling 150,000 cups of bubble tea yearly. (6 marks) 4) Unit selling price. (3 marks) 5) Contribution margin per unit. (2 marks) 6) Number of cups of bubble tea required to breakeven. (2 marks) (ii.) What are the assumptions and limitations of the high-low method? Explain with five pointers using case's details as example. (15 marks) DMSAF 2015 October Managerial Accounting Acc103 CA1 (Group Assignment) Page 3 of 4 PART B (10 marks) Information of the case and Part A should ALL be considered in this Part B. Assume that a jelly supplier offers to sell to Jelly & Tea Ltd ready-made jelly pearls at $0.80 per packet of 10 pearls. Jelly & Tea Ltd estimates that specific fixed overhead costs of $60,000 for making all the jelly pearls needed to make and sell 150,000 cups of bubble tea can be saved if it buys from this supplier. Required: Consider the new breakeven point if Jelly & Tea Ltd is to purchase from this supplier and round up the breakeven cups of bubble tea to a whole number. Advise Jelly & Tea Ltd should or should not buy the ready-made jelly pearls from this supplier. (10 marks) PART C (23 marks) Information of the case, Part A and Part B should ALL be considered in this Part C. Due to stiff competition in the industry and customer's increasing expectations, Jelly & Tea Ltd has decided to diversify its products by launching a new drink, known as Bubble Coffee. To ensure success in the new product, marketing and advertisements will have to be conducted to promote the new drink to customers. This is estimated to cost $80,000 per year. The prime cost of each cup of Bubble Coffee is the same as for the Bubble Tea, except for the jelly pearls where Bubble Coffee is expected to need only 50% of jelly pearls used for Bubble Tea. Jelly & Tea Ltd has decided to purchase jelly pearls from the supplier instead of making it. Bubble Coffee will be priced at a 50% premium above the current Bubble Tea selling price. Apart from the additional marketing and advertisement costs, no other incremental fixed costs will be expected. Required: DMSAF 2015 October Managerial Accounting Acc103 CA1 (Group Assignment) Page 4 of 4 1) Compute the contribution margin per cup of Bubble Coffee. (5 marks) 2) If Jelly & Tea Ltd is to sell only the Bubble Coffee, how many cups of Bubble Coffee will need to be sold in order to make a profit of $100,000? (2 marks) Jelly & Tea Ltd has estimated that 30% of their total sales revenue can be generated from Bubble Coffee. Based on the given sales mix of the 2 drinks that Jelly & Tea Ltd is now planning to sell, compute: Required: 3) the weighted average contribution / sales ratio, state the percentage answer in two decimal places. (5 marks) 4) the breakeven sales revenue and round the answer to the nearest dollar.