1 2 Excel Function Unit of Measurement 3 Average Cost Assumptions Classic Cabinets has a factory that produces custom kitchen cabinets. It has multiple product lines. Materials and labor for the cabinets are determined by each job. To simplify the assignment, we will assume the following average costs. The materials include $1,000 for the wood and other materials of $200 It requires 20 hours of labor on average for a custom kitchen. The hourly rate is $10. The sales price will be set at a markup of 65%. The company estimates that it will have 16,000 direct labor hours in total for the kitchen cabinets. It assumes 800 units are sold on average per year. 4 5 $1,200.00 DM per kitchen $200.00 DL per kitchen 1.65 Markup multiplier 16,000 DL Hours Estimate for 800 kitchens 800 Kitchens 6 7 8 9 A breakdown of estimated yearly costs related to the kitchen cabinets follows: Costs 10 Dollar Value 11 12 13 14 15 16 17 Salaries- office & administrative Salaries for factory personal Office Rent Factory Rent Utilities and Misc office expenses(based on units sold) Trav on units sold) Insurance - office Depreciation - office equipment Depreciation for factory equipment Advertising Sales commissions(based on units sold) Factory Property taxes Maintenance for factory equipment $520,000.00 $220,000.00 $125,000.00 $20,000.00 $20,000.00 $24,00 $12,000.00 $40,000.00 $70,000.00 $20,000.00 $45,000.00 $10,000.00 $80,000.00 18 19 20 21 22 23 Question Prepare three CVP Income Statements using the following yearly volumes: 400, 800 and 1,200. Keep in mind how variable and fixed costs behave. The traditional income statement from #4 should be about the same net income as the 800 units for the CVP format.(use exhibit 20-12 page 893 as your example - please note that it is missing a title and your numbers are for a year.) a) Calculate Break-even in units and sales $ for the company b) Calculate units and sales $ if the company wants a profit of $1,000,000. c) Margin of safety for 800 units. Discuss the importance of these calculations to a company. Fully discuss the differences between the traditional vs CVP format. Give examples supported by numbers of how you would use these calculations as the CFO of the company. 3 Question If the following changes were to be made, calculate a new CVP Income Statement: Direct Material costs decrease by 10%; fixed costs increase by 15% and sales price would increase by 5%. Assume you are selling the 800 units. Should the company consider these changes? Why or why not? Give some real examples of cost increases for fixed costs and decreases for direct materials that could be implemented for the business. 1 2 Excel Function Unit of Measurement 3 Average Cost Assumptions Classic Cabinets has a factory that produces custom kitchen cabinets. It has multiple product lines. Materials and labor for the cabinets are determined by each job. To simplify the assignment, we will assume the following average costs. The materials include $1,000 for the wood and other materials of $200 It requires 20 hours of labor on average for a custom kitchen. The hourly rate is $10. The sales price will be set at a markup of 65%. The company estimates that it will have 16,000 direct labor hours in total for the kitchen cabinets. It assumes 800 units are sold on average per year. 4 5 $1,200.00 DM per kitchen $200.00 DL per kitchen 1.65 Markup multiplier 16,000 DL Hours Estimate for 800 kitchens 800 Kitchens 6 7 8 9 A breakdown of estimated yearly costs related to the kitchen cabinets follows: Costs 10 Dollar Value 11 12 13 14 15 16 17 Salaries- office & administrative Salaries for factory personal Office Rent Factory Rent Utilities and Misc office expenses(based on units sold) Trav on units sold) Insurance - office Depreciation - office equipment Depreciation for factory equipment Advertising Sales commissions(based on units sold) Factory Property taxes Maintenance for factory equipment $520,000.00 $220,000.00 $125,000.00 $20,000.00 $20,000.00 $24,00 $12,000.00 $40,000.00 $70,000.00 $20,000.00 $45,000.00 $10,000.00 $80,000.00 18 19 20 21 22 23 Question Prepare three CVP Income Statements using the following yearly volumes: 400, 800 and 1,200. Keep in mind how variable and fixed costs behave. The traditional income statement from #4 should be about the same net income as the 800 units for the CVP format.(use exhibit 20-12 page 893 as your example - please note that it is missing a title and your numbers are for a year.) a) Calculate Break-even in units and sales $ for the company b) Calculate units and sales $ if the company wants a profit of $1,000,000. c) Margin of safety for 800 units. Discuss the importance of these calculations to a company. Fully discuss the differences between the traditional vs CVP format. Give examples supported by numbers of how you would use these calculations as the CFO of the company. 3 Question If the following changes were to be made, calculate a new CVP Income Statement: Direct Material costs decrease by 10%; fixed costs increase by 15% and sales price would increase by 5%. Assume you are selling the 800 units. Should the company consider these changes? Why or why not? Give some real examples of cost increases for fixed costs and decreases for direct materials that could be implemented for the business