1. How much of the costs were allocated between the standard and deluxe models of the product? Is the marketing manager correct that LGI is making significant margins on the Deluxe Loot Box? Please elaborate on your answer and include evidence from Tab 1 of the Excel workbook.

TAB 1

Question 1 Profit Maximization andard Boxes ( obtain from Project 2) 12 FC / per month Total Costs Daily profit (revenue -all Annual Revenue Annual VC Quantity Boxes sold per month i Price Annual FC Revenue VC /unit VC Annual Total [millions) [(FC+VC) costs (millions) 5 S 22.00 5 (millions) (millions) 110.00 $ 10.00 $ Costs (millions) Annual Profit 50.00 5 10.00| $ 60.00 5 50.00 $ 1,320.00 5 600.00 5 120.00 $ 21.60 18.80 5 10.00 $ 55.00 $ 720.00 5 600.00 10.00 $ 65.00 5 21.20 $ 3.80 $ 1,425.60 5 660.00 $ 127.20 $ 10.00 5 60.00 5 120.00 |$ 780.00 645.60 10.00 $ 70.00 $ 67.20 $ 20.80 5 1,526.40 135.20 $ 10.00 $ 720.00 $ 120.00 |$ 65.00 5 840.00 686.40 10.00 $ 75.00 5 60.20 5 20.40 $ 1,622.40 S 780.00 5 120.00 $ 142.80 S 900.00 $ 10.00|$ 70.00 5 722.40 20.00 5 10.00 5 80.00 S 150.00 $ 62.80 $ 10.00 $ 1,713.60 75.00 $ 10.00 5 85.00 5 5.00 5 840.00 5 120.00 5 960.00 753.60 1,800.00 19.60 900.00 5 120.00 5 156.80 5 1,020.00 780.00 10.00 $ 19.20 5 80.00 90.00| $ 66.80 $ 163.20 $ 10.00 5 85.00 5 960.00 $ 120.00 S 10.00 5 95.00 $ 18.80 $ 68.20 5 801.60 69.20 $ 10.00 5 1,020.00 $ 120.00 5 1,140.00 $ 90.00 5 818.40 10.00 $ 100.00 $ 69.20 $ 2,030.40 $ 18.40 S 1,080.00 $ 120.00 $ 1,200.00 $ 174.80 5 10.00 5 95.00 S 830.40 18.00 $ 10.00 5 180.00 $ 105.00 5 10.00 $ 100.00 5 69.80 5 2,097.60 1,140.00 |5 10.00 $ 110.00 $ 120.00 |S 1,260.00 5 837.60 17.60 5 70.00 $ 2,160.00 5 1,200.00 $ 120.00 $ 84.80 S 10.00 105.00 5 1,320.00 $ 10.00 5 840.00 17.20 115.00 $ 189.20 $ 10.00 5 110.00 5 69.80 5 2,217.60 1,260.00 S 120.00 10.00 5 120.00 5 1,380.00 69.20 $ 837.60 16.80 $ 193.20 $ 2,270.40 1,320.00 5 120.00 5 10.00 5 115.00 5 1,440.00 10.00 5 16.40 $ 125.00 $ 68.20 5 196.80 $ 10.00 5 2,318.40 5 120.00 S 1,380.00 5 120.00 $ 1,500.00 5 16.00 5 10.00 5 130.00 $ 200.00 $ 10.00 5 125.00 5 66.80 5 2,361.60 5 1,440.00 S 10.00 5 135.00 $ 120.00 $ 801.60 15.60 65.00 $ 2,400.00 5 1,560.00 202.80 $ 1,500.00 5 120.00 $ 10.00 130.00 10.00 S 1,620.00 5 780.00 15.20 5 140.00 S 205.20 $ 10.00 5 135.00 5 62.80 $ 10.00 $ 145.00 5 60.20 5 2,433.60 1,560.00 5 120.00 5 1,680.00 753.60 14.80 5 207.20 5 10.00 5 140.00 5 2,462.40 S 1,620.00 5 120.00 5 1,740.00 $ 10.00 5 150.00 $ 57.20 5 2,486.40 $ 722.40 1,680.00 5 120.00 5 1,800.00 $ 686.40 Profit Maximization Deluxe Boxes Deluxe boxes sold per month Revenue (price x Variable Cost per |Variable Cost Total Cost ( millions) Price volume) standard box cost per unit Fixed cost per (Fixed + Daily Profit (revenue - Annual Revenue Annual VC Annual FC x volume) month (millions) Variable) all costs) Annual Total Annual Profit (millions) (millions) (millions) 30.00 10.00 Costs (millions) (millions) 10.00 19.50 $ 13.00 5 85.40 $ 10.00 | $ 17.00 560.00 120.00 5 12.00 | $ 3.00 $ 15.00 $ 36.00 5 156.0 204.00 10.40 $ 19.00 $ 39.15 $ 424.80 144.00 5 10.00 5 36.00 S 13.50 5 3.00 5 80.00 5 244.80 16.50 5 22.65 $ 469.80 $ 28.50 $ 162.00 $ 36.00 $ 198.00 $ 12.75 5 10.00 5 28.00 $ 15.00 S 271.80 3.00 S 18.00 5 13.40 $ 24.75 5 513.00 S 10.00 $ 15.50 5 180.00 5 36.00 S 3.00 5 18.50 5 24.90 5 216.00 S 297.00 27.50 44.00 520.80 $ 186.00 5 10.00 16.00 36.00 $ 222.00 $ 298.80 44.55 5 3.00 5 19.00 27.00 10.00 5 25.00 5 528.00 16.50 192.00 3.00 5 36.00 19.50 5 228.00 300.00 26.50 5 25.05 5 45.05 $ 534.60 198.00 $ 10.00 $ 36.00 5 300.60 26.00 $ 17.00 5 3.00 $ 234.00 20.00 5 45.50 5 25.05 5 10.00 5 540.60 5 204.00 5 36.00 $ 20.50 $ 25.50 45.90 $ 17.50 5 3.00 5 240.00 $ 25.00 5 546.00 300.60 10.00 5 18.00 5 3.00 5 21.00 $ 24.90 5 210.00 5 36.00 5 300.00 46.25 550 .80 5 246.00 18.50 216.00 $ 10.00 36.00 $ 252.00 5 3.00 5 24.75 5 298.80 24.50 5 46.55 5 10.00 5 19.00 5 0 S 22.00 5 555.00 558.60 222.00 5 36.00 5 3.00 5 258.00 297.00 10.00 5 24.55 5 24.00 46.80 $ 19.50 5 228.00 S 16.00 5 264.00 294.60 3.00 5 10.00 $ 22.50 5 24.30 5 47.00 $ 561.60 234.00 S :6.00 5 270.00 5 291.60 23.00 5 20.00 3.00 5 23.00 47.15 5 24.00 5 10.00 5 20.50 5 564.00 23.50 5 240.00 5 3.00 5 36.00 5 276.00 288.00 22.50 5 47.25 5 10.00 5 21.00 5 24.00 S 23.65 5 565.80 246 .00 5 47.30 $ 23 .25 5 36.00 5 282.00 5 283.80 22.00 5 3.00 5 10.00 5 21.50 5 3.00 5 24 . 50 567.00 252.00 5 36.00 5 288.00 279.00 21.50 5 17.30 S 22.80 5 567.60 21.00 10.00 5 47.25 5 10.00 5 22.00 5 258.00 S 36.00 5 294.00 5 273.60 3.00 25.00 21.75 567.00 264.00 5 270.00 5 36.00 5 36.00 300.00 306.00 5 267.60 261.00 Question 2 The Company currently operates by selling 9 Million Standard Boxes and 1.5 Million Deluxe Boxes per month. With environmental concerns over the use of the materials and techniques to make the Deluxe Boxes the company director is concerned over its longterm feasibility. The marketing manager is convinced that under the current cost allocation Deluxe boxes is the ighest contributor to company gross profit. How much profit is made on each product ? Also calculate the Gross Profit percentage for each product. HINT Use the annual information calculated in Question 1 to complete Question 2. Complete the grey spaces Standard Boxes Deluxe Boxes Total Number Of Boxes (in Millions pe 9 1,3 10.5 Volume per year ( millions) 108 126 $ (in millions) $ (in millions) $ (in millions) Revenue 2,030.40 $ 513.00 | $ 2,543.40 ess: Variable Costs ,080.00 $ 180.00 5 1,260.00 Marginal Contribution 950.40 5 333.00 $ 1,283.40 Less: Fixed Costs 120.00 5 36.00 5 156.00 Profit 830.40 $ 297.00 $ 1,127.40 Profit % 40.90% 57.89% 44.33%%Question 1 A new intern at the company believes that fixed cost based and allocated on a daily basis is incorrect and suggests allocating the Fixed Costs between Standard and Deluxe Boxes Based on the number of boxes sold. How much costs are allocated to each product based on the method suggested by the intern? To prove s/he point the intern also calculated the profit percentage. Complete the grey spaces Standard Boxes Deluxe Boxes Total Volumes (per Month) 9 1.5 10.5 Volumes per year ( millions) 108 18 126 Total Fixed Costs (Millions- from Tab1) $ 120.00 $ 36.00 $ 156.00 New Profit Millions Millions Sales 2,030.40 $ 513.00 Less VC 1,080.00 $ 180.00 Contribution Margin 950.40 $ 333.00 Less Fixed Costs 133.71 S 22.29 Operting Profit 816.69 310.71 Profit % 40.22% 60.57% fixed cost per unit total fixed cost/total boxesrs recently attended a course at UMGC where they learned about ABC costing. They propose allocating the total fixed costs between Standard and Deluxe od . They collected information about the cost drivers and the break up of the total costs in Table 1 below. How much overhead would be allocated to es ( in total and per unit) using this method? Show all supporting calculations. Complete the grey spaces Total Cost Check (must $ Amount Cost driver Standard Box Deluxe Box Totals of Drivers Cost of Deluxe Boxes Cost of Deluxe Boxes agree to Column B7:B14) $47.00 Square feet 7,000 80,000 $0.0005 $ 3.78 $ 43.22 $47.00 $50.00 Direct Labour Hours 1,000 9,000 $0.0050 ur 5.00|$ 45.00 $50.00 $9.00 Number of purchases 500 4,500 S orders $0.0018 0.90 8.10 $9.00 $34.00 Number of employees 1,000 6000 $0.0049 $ 4.86 $ 29.14 $34.00 $5.00 Labour Hours 1,000.00 9,000.00 $0.0005 0.50| $ 4.50 $5.00 $7.00 #of inspections 200 800 $0.0070 1.40| $ 5.60 $7.00 $4.00 Units manufactured 1,000.00 9,000.00 $0.0004 0.40 $ 3.60 $4.00 $156.00 16.84 $ 139.16 $156.00 108 18 Standard Boxes Deluxe Boxes Total 2,030.40 $ 513.00 $ 2,543.40 1,080.00 $ 180.00 $ 1,260.00 950.40 $ 333.00 1,283.40 16.84 $ 139.16 $ 156.00 933.56 $ 193.84 $ 1,127.40 45.98% 37.8% 44%