1 Using the data in Exhibit 2 calculate the cost function (y mx b) using the high low method a Note there are only 22 data points (August and September of the 2nd year are missing) b Be sure to check for outliers in the data prior to choosing your high low points 2 Using the data in Exhibit 4 calculate the per unit cost for each of the categories, then identify each cost as fixed, variable or mixed a Note Calculating the per unit cost helps to identify costs as fixed, variable or mixed Fixed Units producted And sold Variable Cost Category 1200 1900 1200 1900 Mixed Direct Material 36000 57000 Direct labor 18000 28500 Rent 5000 5000 DEPRICIATION 4000 4000 Electricity 4400 5800 Other manufacting 19600 21700 Selling 8000 8000 Sales commission 12000 19000 Admistrative 5000 5000 b Create a chart which identifies the fixed and variable costs Remember that mixed costs need to be converted to their fixed and variable portions using the high low method This chart should then give you an updated cost function (y mx b) This updated cost function is used in questions 4 and 5 below Cost Category Fixed Variable Direct Material Direct labor Rent Depreciation Electricity Other manufacturing Selling Sales Commission Admirative 3 For each cost listed in Exhibit 3, indicate whether the cost is a manufacturing or nonmanufacturing cost 4 Using the cost equation, you developed in Question 2 b answer the following a Assume the company expects to produce and sell 1,500 units during the following month at a price of $100 per unit i Prepare an income statement based on financial reporting (absorption method) ii Prepare an income statement based on the contribution margin approach (variable method) iii Calculate the contribution margin per unit iv Calculate the break even point in units per month 5 The owners have set a target profit of $25,000 per month ($300,000 per year) in order from them to devote themselves full time to JW Sports Supplies Evaluate each of the following factors, separately (assume other factors stay the same as in the income statement from number 4 above) a What price must the company set to achieve a profit of $25,000 b What must the variable cost per unit be to achieve a profit of $25,000 c How many units must it sell to achieve a profit of $25,000 d What must total monthly fixed costs be to achieve a profit of $25,000

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1. Using the data in Exhibit 2 calculate the cost function (y=mx + b) using the high-low method a. Note there are only 22 data

1. Using the data in Exhibit 2 calculate the cost function (y=mx + b) using the high-low method

a. Note there are only 22 data points (August and September of the 2nd year are missing)

b. Be sure to check for outliers in the data prior to choosing your high-low points

2. Using the data in Exhibit 4 calculate the per-unit cost for each of the categories, then identify each cost as fixed, variable or mixed

a. Note Calculating the per-unit cost helps to identify costs as fixed, variable or mixed

					Fixed
	Units producted	And sold			Variable
Cost Category	1200	1900	1200	1900	Mixed

Direct Material	36000	57000
Direct labor	18000	28500
Rent	5000	5000
DEPRICIATION	4000	4000
Electricity	4400	5800
Other manufacting	19600	21700
Selling	8000	8000
Sales commission	12000	19000
Admistrative	5000	5000

b. Create a chart which identifies the fixed and variable costs. Remember that mixed costs need to be converted to their fixed and variable portions using the high-low method. This chart should then give you an updated cost function (y=mx +b). This updated cost function is used in questions 4 and 5 below.

Cost Category	Fixed	Variable
Direct Material
Direct labor
Rent
Depreciation
Electricity
Other manufacturing
Selling
Sales Commission
Admirative

3. For each cost listed in Exhibit 3, indicate whether the cost is a manufacturing or nonmanufacturing cost.

4. Using the cost equation, you developed in Question 2.b. answer the following:

a. Assume the company expects to produce and sell 1,500 units during the following month at a price of $100 per unit:

i. Prepare an income statement based on financial reporting (absorption method)

ii. Prepare an income statement based on the contribution margin approach (variable method)

iii. Calculate the contribution margin per unit

iv. Calculate the break-even point in units per month

5. The owners have set a target profit of $25,000 per month ($300,000 per year) in order from them to devote themselves full-time to JW Sports Supplies. Evaluate each of the following factors, separately (assume other factors stay the same as in the income statement from number 4 above):

a. What price must the company set to achieve a profit of $25,000?

b. What must the variable cost per unit be to achieve a profit of $25,000?

c. How many units must it sell to achieve a profit of $25,000?

d. What must total monthly fixed costs be to achieve a profit of $25,000?