Accounting for Decision Making and Control 8th Edition by Jerold Zimmerman

Exercise 16

Brehm Vineyards
Brehm Vineyards grows a unique white pinot noir grape that they use to produce a white wine that is in high demand. Brehm uses all the grapes they can grow to produce their own white pinot noir wine. Brehm pinot noir wine contains 100 percent Brehm-grown grapes. The company neither buys nor sells grapes. Because of the uniqueness and difficulty of growing white pinot grapes, Brehm can only produce 8,000 cases (12 bottles per case) in a normal year. A good growing season might yield 10,000 cases, whereas bad weather can cut production to 5,000 cases. In a normal year Brehm expects to sells its wine to wholesalers for $120 per case.
The following table summarizes how Brehm managers expect their costs to vary with the number of cases produced.
Required:
a. Prepare a flexible budget (including budgeted net income) assuming Brehm produces and sells 8,000 cases of wine.
b. Calculate the break-even number of cases.
c. How many cases does Brehm have to produce if they want an after-tax profit of $300,000 and the income tax rate is 40 percent?
d. Bad weather this year cut Brehm's production and sales to only 6,000 cases. The low yield drove up wholesale prices of the white pinot wine from $120 to $140 per case. Brehm's actual expenses for the year were:
Design and prepare a table that reports the performance of Brehm for the year.
e. Write a short memo summarizing Brehm's performance during the past year. Did management do a good or bad job?