6 Mastery

Mastery Problem: Cost-Volume-Profit 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.

Units Produced	Total Lumber Cost	Total Utilities Cost	Total Machine Depreciation Cost
8,000 shelves	$88,000	$10,200	$135,000
16,000 shelves	176,000	19,400	135,000
32,000 shelves	352,000	37,800	135,000
40,000 shelves	440,000	47,000	135,000

2. For each cost, determine the fixed portion of the cost, and the per-unit 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.

Cost	Fixed Portion of Cost	Variable Portion of Cost (per Unit)
Lumber	$_____	$___
Utilities	_____	_____
Depreciation	_____	_____

High-Low

Biblio Files Company is the chief competitor of Cover-to-Cover 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	275		6,250
March	1,000		15,000
April	4,775		96,250
May	1,750		32,500
June	3,015		48,000

1. From the data previously provided, help Biblio Files Company estimate the fixed 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
$_____	$____

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).

Number of Units Produced	Total Cost
3,500	____$
4,360	_____
4,775	______

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 83,800 units during the year.

	Cover-to-Cover Company	Biblio Files Company
Contribution margin ratio (percent)	%____	%____
Unit contribution margin	$___	$____
Break-even sales (units)	_____ units	____ units
Break-even sales (dollars)	$_____	$___

Income Statement - Cover-to-Cover Cover-to-Cover Company Contribution Margin Income Statement For the Year Ended December 31, 20Y8
Sales		$419,000
Variable costs:
Manufacturing expense	$251,400
Selling expense	20,950
Administrative expense	62,850	(335,200)
Contribution margin		$83,800
Fixed costs:
Manufacturing expense	$5,000
Selling expense	4,000
Administrative expense	11,950	(20,950)
Operating income		$62,850

Income Statement - Biblio Files

Biblio Files Company Contribution Margin Income Statement For the Year Ended December 31, 20Y8
Sales		$419,000
Variable costs:
Manufacturing expense	$167,600
Selling expense	16,760
Administrative expense	67,040	(251,400)
Contribution margin		$167,600
Fixed costs:
Manufacturing expense	$86,750
Selling expense	8,000
Administrative expense	10,000	(104,750)
Operating income		$62,850

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 Bookshelf	Sales Price per Unit	Variable Cost 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 $337,260. Recall that the totals of all the sales mix percents must be 100%. Determine the amounts to complete the following table.

Type of Bookshelf	Percent of Sales Mix	Break-Even Sales in Units	Break-Even Sales in Dollars
Basic	___%	____units	____units
Deluxe	___%	_____ units	____units

Target Profit

Refer again to the income statements for Cover-to-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 profit by $30,000 in the coming year, what must their amount of sales be? $____

2. If Biblio Files Company wants to increase its profit by $30,000 in the coming year, what must their amount of sales be? $___