Midwest Ice Cream Company

Essay by PaperNerd ContributorUniversity, Master's October 2001

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The first step establishes standards for selling price, variable expenses, and marginal contribution per gallon. All the manufacturing cost items for each product are listed at the beginning, and then totaled. Next the fixed marketing cost are added in and totaled, then added to the manufacturing cost to give the total variable costs for each unit produced. Selling price is shown and below this is the marginal contribution before packaging. Then packaging is shown and the subtracted to give the marginal contribution. Management other than waste of each does not control the costs of all the above items. The only exception is the marketing cost that the management sets to what they believe is appropriate to the cost.

Step number two is the forecast of ice cream sales in gallons. The numbers are collected from the previous months and calculated with the other factors such as the general economic conditions in the marketing area, weather, anticipated promotions, competition, number of Fridays and Mondays in the period, and perhaps even the age and culture of the marketing area.

Step three involves the budgeting of fixed expenses. These numbers are calculated from both the sales forecast, governmental laws, past operations, and common expenses that don't change much as operations continue over time.

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