Case $1$: BEP and CVP Analysis Case $1$: BEP and CVP Analysis

Mankato, Inc. produces and sells leather camera bags to its customers.

The selling price is

$150\mathrm{.}00$ per bag regardless of the model or color.

You have been hired as a consultant to give advise to the top management regardng its pricing, production costs, sales and

production volume, and profitability as well as forecast for $2025$ and choosing from several alternative strategies.

Unit sales and the total costs $($production$,$ selling and administrative, and general and

administrative costs$)$ data for $2023$ and the first eight months of $2024$ are as follow:

Mankato, Inc. produces and sells leather camera bags to its customers.

The selling price is $$150\mathrm{.}00$ per bag regardless of the model or color.

You have been hired as a consultant to give advise to the top management regardng its pricing, production costs, sales and

production volume, and profitability as well as forecast for $2025$ and choosing from several alternative strategies.

Unit sales and the total costs $($production$,$ selling and administrative, and general and

administrative costs$)$ data for $2023$ and the first eight months of $2024$ are as follow:

Month Unit Produced and Sold $($X$)$ Total Costs $($Y$)$

$2023$ January $12,200\mathrm{.}00$ $$186,200\mathrm{.}00$

February $11,650\mathrm{.}00$ $$183,050\mathrm{.}00$

March $11,300\mathrm{.}00$ $$181,750\mathrm{.}00$

April $12,300\mathrm{.}00$ $$186,350\mathrm{.}00$

May $11,900\mathrm{.}00$ $$184,650\mathrm{.}00$

June $12,400\mathrm{.}00$ $$186,800\mathrm{.}00$

July $11,350\mathrm{.}00$ $$181,850\mathrm{.}00$

August $11,600\mathrm{.}00$ $$182,900\mathrm{.}00$

September $11,900\mathrm{.}00$ $$184,650\mathrm{.}00$

October $11,500\mathrm{.}00$ $$182,400\mathrm{.}00$

November $12,300\mathrm{.}00$ $$186,600\mathrm{.}00$

December $11,700\mathrm{.}00$ $$183,300\mathrm{.}00$

$2024$ January $11,900\mathrm{.}00$ $$184,400\mathrm{.}00$

February $12,100\mathrm{.}00$ $$185,750\mathrm{.}00$

March $12,500\mathrm{.}00$ $$187,400\mathrm{.}00$

April $12,200\mathrm{.}00$ $$186,250\mathrm{.}00$

May $12,250\mathrm{.}00$ $$186,150\mathrm{.}00$

June $12,000\mathrm{.}00$ $$185,200\mathrm{.}00$

July $12,100\mathrm{.}00$ $$185,400\mathrm{.}00$

August $12,450\mathrm{.}00$ $$187,450\mathrm{.}00$

Grade

Required: Calculation Analysis

Using regression, determine Mankato, Inc.$\text{'}$s variable costs per unit and total fixed costs $10\mathrm{.}00\%$

both monthly and annually for the $2023-2024$ period.

Create a regression chart and analyze the reliability of the regression in the Regression tab. $5\mathrm{.}00\%$

Determine the company's monthly and annual cost functions. $5\mathrm{.}00\%$

Calculate its Unit and Sales Revenue Break Even Point. $7\mathrm{.}50\%$

Forecast the $2025$ Income Statement if the company plans to produce and sell $5\mathrm{.}00\%$

$175,000\mathrm{.}00$ bags in $2025.$

Analyze the followings if the forecast is accurate:

a$.$ Dollar and Percentage Margin of Safety in $2025.$ Explain what the numbers mean. $5\mathrm{.}00\%2\mathrm{.}50\%$

b$.$ Degree of Operating Leverage in $2025.$ Explain what the number means and give example. $5\mathrm{.}00\%2\mathrm{.}50\%$

The managers come with three independent proposals for $2025$ and ask you to make recommendations.

Compare the proposals to the original plan for $2025.$ Which proposal would you recommend?

P$1$ A market analysis forecasts that a $10\%$ reduction in selling price, combined with an increase of $$1,000$ in $12\mathrm{.}50\%5\mathrm{.}00\%$

the monthly advertising $($FC$)$ budget, will cause unit sales to increase by $1,500$ units per month.

P$2$ The company's marketing department thinks that a new packaging would boost monthly sales by $$5,000.12\mathrm{.}50\%5\mathrm{.}00\%$

The new package would increase variable costs by $$1\mathrm{.}00$ per unit.

P$3$ An outside consultant has reported that by automating certain operations, the company can cut $12\mathrm{.}50\%5\mathrm{.}00\%$

its variable costs per unit by $10\%.$ However, total fixed costs will increase by $$6,000$ per month

and there is a $$125,000$ one$-$time investment for the automation.

Sub total $75\mathrm{.}00\%25\mathrm{.}00\%$

Total $100\mathrm{.}00\%$

Notes:

Please support your recommendations with calculations. Use ANNUAL figures for your recommendations.

To determine the annual cost function: multiply monthly total Fixed Costs by $12.$

The slope per unit remains the same for both monthly and annually.