Baby Boom, Inc.

  You are a new graduate from Morgan State University, and you just got the job of a lifetime at the New York office of Baby Boom, Inc., one of the giants manufacturing firms in North America, 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 last night because you have been concerned about your first ever job assignment at Baby Boom, Inc. You certainly would like to make a good first impression as a recent graduate 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 from chapter 19 to chapter 24. A glance at the cost accounting materials listed in the Principles of Accounting II course did boost your confidence and reenergize your enthusiasm to work on meeting or exceeding Mr. Trainor’s expectations.

  Ms. Trainor then welcomed you and discussed with you your new job’s duties and responsibility.  You noticed that your job duties include doing some financial as well as managerial accounting functions, which involve preparing cost-volume- analysis report, detailed financial statements analysis by the end of each year, and providing recommendations on the firm’s solvency, liquidity and profitability. Ms. Trainor then presented to you some information about production and sales figures and asked you to prepare a detailed report to help her in planning the target level of profitability and assess the current financial figures of the firm. Baby Boom Inc. bottles and distributes Kido, a baby food formula. The bottle is sold for 50 cents per 16-ounce bottle to retailers, who charge customers 79 cents per bottle. For the year 2015, Ms. Trainor estimates the following revenues and costs for year 2016.

Budgeted estimates for 2016

Net sales


Direct materials


Direct labor


Manufacturing overhead-variable


Manufacturing overhead-fixed


Selling expenses-variable


Selling expenses-fixed


Administrative expenses-variable


Administrative expenses-fixed


Below are financial data ofBaby Boom Inc.andHappy Feet, Inc., for the current year 2015 (in millions).

Baby Boom Inc.

Happy Feet, Inc.,


Income Statement Data 

Net sales



Cost of goods sold



Selling and administrative expenses



Interest expense



Other income (expense)



Income tax expense



Net income

$ 2,849

$ 12,731

Balance Sheet Data 

Current assets


$ 47,585

Noncurrent assets



Total assets



Current liabilities


$ 58,454

Long-term debt



Total stockholders’ equity



Total liabilities and stockholders’ equity



Beginning-of-Year Balances

Total assets



Total stockholders’ equity



Current liabilities



Total liabilities



Other Data

Average net receivables

$ 7,124

$ 3,247

Average inventory



Net cash provided by operating activities




a.  Prepare the Cost-Volume-Profit income statement for 2012 based on Ms. Trainor’s estimates.

b.  Compute the break-even point in (1) units and (2) dollars.

c.  Compute the contribution margin ratio and the margin of safety ratio. Give Ms. Trainor some advice on how to use these ratios in cost management planning.

d.  Mr. Trainor told you that the top management aspires to achieve net income of $237,400 next year. Based on this information, what are the sales dollars required to earn the target net income? 

e.  Calculate the financial ratios of solvency, profitability and liquidity and give recommendations to Ms. Trainor about the current financial ratios of Baby Boom Inc. compared to its rival firm, Happy Feet, Inc.