3. Based on the calculations in Tab 3 using ABC, comment on the profits made for each product type. Explain in your report why this has changed under ABC costing. Also indicate which one of the two systems; that is, historical cost or ABC, provides the best answers for decision making to improve cost management to improve EBITDA.

[insert your answer here]

4. The marketing manager suggested that to improve EBITDA and increase sales volume, the Sustainable Deluxe Box should be sold at the same margin as the Standard Box. Base your answers on the calculations performed in Sheet 4 ( tab 4) to indicate how much Largo will need to charge for the Sustainable Deluxe Box. Indicate how many Sustainable Deluxe Boxes the company will have to sell at the new price to break even. Discuss whether changing the price is a viable option for Largo. Provide evidence from the Excel workbook, Tab 4.

[insert your answer here]

5. If Largo Global Inc. is unable to sell the Sustainable Deluxe Box for more than $27.10 , discuss possible alternatives. Doing the same thing LGI is already doing is not an option; you must suggest how to improve EBITDA.

Discuss the facts that should be considered in determining whether manufacturing the Boxes in-house could lead to a price reduction. No calculations are required for Question 5

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%Question 1 The sustainability manager is concerned about the long term sustainability implications of Deluxe boxes on the environment and suggest changing to sustainable materials for the production of a Sustainable Deluxe If the company switches to their current quantity of Deluxe Boxes sold to Sustainable Deluxe Boxes there ne Sustalilavie Deluxe buses could ve nique cheaper, allu ine susuallauning manager veneves inat ine company could bring down the selling price to $15 per box which would entice current Deluxe Boz customers to accept the switch over. The new Sustainable Deluxe Boxes will attract 60% of total fized costs calculated for the Deluxe Boxes under the ABC method. The number of boxes sold will not be affected by this new selling price. as the company will in future have to do marketing to sell more boxes at the lower price. Calculate the new Gross profit and profit percentage. Complete the qren spaces Standard Boze:stainable Delu: Total Quantity 108.00 18.00 126.00 Sellin price per unit 18.80 $ 5.00 Sales 2,030.40 270.00 $ 2,300.40 080.00 180.00 ,260.00 Contribution 950.40 10.00 1,040.40 led Costs 16.84 $ 83.50 $ 100.34 Profit 933.56 6.50 $ 940.06 GP 45.98%% 2.41% 41% Question 2 The manager Is concerned about the massive reduction in profit from the Sostainable DeTure Boxes but realizes that because of the change in materials. they will no longer be able to charge the price of $18 per box. The manager wants to achieve at least the same profit percentage for the deluxe boxes as they have on standard boxes. How much additional profit are they requiring? Complete the gren spaces Required profit 45.98% See Tab 3 Less: Existing profit 2.41% See Q 1 above Equals: Difference in additional profit equired 43.57% Question 3 Work out the percentage that they should mark up on the costs to achieve the same profit % as for he standard boxes. Complete the gren spaces Sales 100% Less Required GP% 45.98% Equals: Mark up percentage on cost 54.02% Question 4 product to reach the same profit percentage as for the standard boxes . Assume the company can still sell the same quantity of the Sustainable Deluxe Boxes as for the Deluse Boxes. Complete the gren spaces Totals Variable Costs 180.00 Fixed Cost 83.50 Total Costs 263.50 Sales 487.77 Units sold 18 Sales Price per unit $ 27.10 Question 5 `rove that your calculation in Q 4 is correct. Complete the ; Proof: Total Per Unit Sales 187.77 $ 27.10 Less VC 180.00 10 Contribution 307.77 17.10 Fixed Costs 83.50 Net Profit 224.27 Profit % 45.98% Question 5 The marketing manger is concerned that the change could havea significant impact on sales as ciustomers may see the sustainble boxes as an inferiror product for which they still have to pay only a little bit less than the orginal price of the Deluxe Boxes. How many boxes would the company have to sell to break even on the new Sustainabale Deluxe Boxes based on the new selling price? Complete the ares boxes $ Totals Selling price 27.10 Less: Variable costs 10.00 Contribution 17.10 Fixed Costs 100.34 Breakeven Quantity 5.87 BreakEven Value $ 159.02