Problem - Mutt Butter, is an emerging company that manufactures and sells peanut butter treats for dogs. Mutt Butter includes two ingredients: peanut butter, and added nutrient powder. The ratio of Peanut Butter to nutrient powder if 2:1. To make Mutt Butter, the ingredients are mixed in a food processor. Mutt Butter is packaged in 1.5 oz single-serve cups. Julia is the chef of Mutt Butter and her sole role is to make the Mutt Butter. Mutt Butter is made in a commercial kitchen that Mutt Butter rents for a contracted 25 days a year at rate of $3,750 per year. That rent includes the utilities and use of the food processor and packaging equipment. The kitchen facility will also store any packaged Mutt Butter and ingredients for free (up to 5,000 1.5 oz cups). Mutt Butter did one production run in 2015. The Ending Balance of inventory at the end of the run was as follows:
|
Item
|
Ending Amount
|
Ending Balance ($)
|
|
Peanut Butter
|
200 oz.
|
$200
|
|
Nutrient Powder
|
400 oz.
|
$500
|
|
1.5 Oz Cups (with lids)
|
500
|
$50
|
|
Finished Mutt Butter (in cups)
|
50 x 1.5 oz. Servings
|
$182
|
|
Mutt Butter in Process
|
150 x 1.5 oz. Servings
|
$546
|
In 2016, Mutt Butter executed several production runs and sold 2,500 units (3,750 oz.) of Mutt Butter. The net revenue from the sales was $12,500. During 2016, Mutt Butter incurred the following expenses:
|
Item
|
Expense ($)
|
|
Wages to Julia for Production
|
$2,000
|
|
Rent for the Kitchen
|
$3,750
|
|
Peanut Butter
|
$3,400
|
|
Nutrient Powder
|
$1,875
|
|
1.5 oz. Cups (with lids)
|
$350
|
|
Delivery Expenses (Shipping)
|
$500
|
|
Advertising Expenses
|
$250
|
|
Other General and Administrative Expenses
|
$200
|
The ending balance at the end of 2016 was as follows:
|
Item
|
Ending Amount
|
Ending Balance ($)
|
|
Peanut Butter
|
600 oz.
|
$600
|
|
Nutrient Powder
|
400 oz.
|
$500
|
|
1.5 Oz Cups (with lids)
|
1,000
|
$100
|
|
Finished Mutt Butter (in cups)
|
550 x 1.5 oz. Servings
|
$2,003
|
|
Mutt Butter in Process
|
150 x 1.5 oz. Servings
|
$546
|
At the end of the year, Mutt Butter received a call that the kitchen facility found an additional 100 oz. package of peanut butter that cost $100. This discovery increased the ending balance of peanut butter in 2016 to $700. Assuming all else equal, how would this discovered error in the ending balance of Peanut Butter change the Cost of Goods Sold?
Decrease COGS by $83.33
Increase COGS by $83.33
Decrease COGS by $100
Increase COGS by $100