3. Why does the total cost computed for 4,360 units not match the data for January? a. The high-low method is accurate only for months in which production is at full capacity. b. The high-low method only gives accurate data when xed costs are zero. c. The highlow method gives a formula for the estimated total cost and may not match levels of production other than the highest and lowest. d. The high-low method gives accurate data only for levels of production outside the relevant range. ic \"J Feedback Contribution Margin Review the contribution margin income statements for Cover-to-Cover Company and Biblio Files Company on their respective Income Statements. Complete the following table from the data provided on the income statements. Each company sold 81,800 units during the year. Cover-to-Cover Biblio Files Company Company Contribution margin ratio (percent) /u Unit contribution margin 4:] :1 4:1 Break-even sales (units) Break-even sales (dollars) DUDE (' Income Statement - COVEr-tO-COVEI' Cover-to-Cover Company Contribution Margin Income Statement For the Year Ended December 31, 20Y8 Sales $409,000 Variable casts: Manufacturing expense $245,400 Selling expense 20,450 Administrative expense 61,350 (327,200) Contribution margin $81,800 Fixed costs: Manufacturing expense $5,000 Selling expense 4,000 Administrative expense 11,450 (20,450) Operating income $61,350 Income Statement - Biblio Files Biblio Files Company Contribution Margin Income Statement For the Year Ended December 31, 20Y8 Sales $409,000 Variable costs: Manufacturing expense $163,600 Selling expense 16,360 Administrative expense 65,440 (245,400) Contribution margin $163,600 Fixed costs: Manufacturing expense $84,250 Selling expense 8,000 Administrative expense 10,000 (102,250) Operating income $61,350 sales Mix Biblio Files Company is making plans for its next fiscal year, and decides to sell two new types of bookshelves, Basic and Deluxe. The company has compiled the following estimates for the new product offerings. Type of Sales Price Variable Cost Bookshelf per Unit per unit Basic $5.00 $1.75 Deluxe 9.00 8.10 The company is interested in determining how many of each type of bookshelf would have to be sold in order to break even. If we think of the Basic and Deluxe products as components of one overall enterprise product called \"Combined,\" the unit contribution margin for the Combined product would be $2.31. Fixed costs for the upcoming year are estimated at $339,570. Recall that the totals of all the sales mix percents must be 100%. Determine the amounts to complete the following table. Type of Percent of Break-Even Break-Even Sales Bookshelf Sales Mix Sales in Units in Dollars Basic Target Profit Refer again to the income statements for Coverto-Cover Company and Biblio Files Company on their respective Income Statement. Note that both companies have the same sales and net income. Answer questions (1) - (3) that follow, assuming that all data for the coming year is the same as the current year, except for the amount of sales. 1. If Cover-to-Cover Company wants to increase its prot by $40,000 in the coming year, what must their amount of sales be? 2. If Biblio Files Company wants to increase its profit by $40,000 in the coming year, what must their amount of sales be? S 3. What would explain the difference between your answers for (1) and (2)? a. Biblio Files Company has a higher contribution margin ratio, and so more of each sales dollar is available to cover xed costs and provide operating income. b. Cover-to-Cover Company's contribution margin ratio is lower, meaning that it's more efcient in its operations. c. The companies have goals that are not in the relevant range. d. The answers are not different; each company has the same required sales amount for the coming year to achieve the desired target profit. la \"J Contribution Margin, BreakEven Sales, Cost-VolumeProfit Chart, Margin of Safety, and Operating Leverage Belmain Co. expects to maintain the same inventories at the end of 20Y7 as at the beginning of the year. The total of all production costs for the year is therefore assumed to be equal to the cost of goods sold. With this in mind, the various department heads were asked to submit estimates of the costs for their departments during the year. A summary report of these estimates is as follows: Estimated Estimated Variable Cost Fixed Cost (per unit sold) Production costs: Direct materials $15 Direct labor 10 Factory overhead $377,400 8 Selling expenses: Sales salaries and commissions 78,400 3 Advertising 26,500 Travel 5,900 Miscellaneous selling expense 6,500 3 Administrative expenses: Ofce and ofcers' salaries 76,700 Supplies 9,400 1 Miscellaneous administrative expense 8,880 2 Total $589,680 $42 It is expected that 8,580 units will be sold at a price of $168 a unit. Maximum sales within the relevant range are 11,000 units. Required: 1. Prepare an estimated income statement for 20Y7. Belmain Co. Estimated Income Statement For the Year Ended December 31, 20Y7 Sales Cost of goods sold: Direct materials Direct labor Factory overhead Total cost of goods sold Gross profit Expenses: Selling expenses: Sales salaries and commissions Advertising 10OOO Travel Miscellaneous selling expense Total selling expenses Administrative expenses: Office and officers' salaries Supplies Miscellaneous administrative expense Total administrative expenses O Total expenses Operating income2. What is the expected contribution margin ratio? Round to the nearest whole percent. 3. Determine the break-even sales in units and dollars. 4. Construct a cost-volume-profit chart on your own paper. What is the break-even sales? $ [:1 5. What is the expected margin of safety in dollars and as a percentage of sales? Percentage: (Round to the nearest whole percent.) :] % 6. Determine the Operating leverage. Round to one decimal place. [:1 Mastery Problem: Cost-VolumeProfit Analysis Cost Behavior Cover-to-Cover Company is a manufacturer of shelving for books. The company has compiled the following cost data, and wants your help in determining the cost behavior. After reviewing the data, complete requirements (1) and (2) that follow. Total Total Total Machine Units Lumber Utilities Depreciation Produced Cost Cost Cost 10,000 shelves $110,000 $13,500 $120,000 20,000 shelves 220,000 25,000 120,000 40,000 shelves 440,000 48,000 120,000 ) 50,000 shelves 550,000 59,500 120,000 1. Determine whether the costs in the table are variable, fixed, mixed, or none of these. Lumber MWW V Utilities 'W' V] Fi ed Cost " V Depreciation 2. For each cost, determine the fixed portion of the cost, and the perunit variable cost. If there is no amount or an amount is zero, enter \"0". Recall that, for N = Number of Units Produced, Total Costs = (Variable Cost Per Unit x N) + Fixed Cost. Complete the following table with your answers. Round variable portion of cost (per unit) answers to two decimal places. Fixed Portion Variable Portion Cost of Cost of Cost (per Unit) mm. :1 :l Depreciation :1 :l High- Low Biblio Files Company is the chief competitor of CovertoCover Company in the bookshelf business. Biblio Files is analyzing its manufacturing costs, and has compiled the following data for the first six months of the year. After reviewing the data, answer questions (1) through (3) that follow. Units Produced Total Cost January 4,360 units $65,600 February 300 6,250 March 1,000 15,000 April 5,800 116,250 May 1,750 32,500 June 3,015 48,000 1. From the data previously provided, help Biblio Files Company estimate the xed and variable portions of its total costs using the high-low method. Recall that Total Costs = (Variable Cost Per ) Unit x Number of Units Produced) + Fixed Cost. Complete the following table. Total Fixed Cost Variable Cost per Unit C 2. With your Total Fixed Cost and Variable Cost per Unit from the high-low method, compute the total cost for the following values of N (Number of Units Produced). U Number of Units Produced Total Cost 4,360 [:1 5,300 [:1