Cost Behavior and Cost-Volume-Profit Analysis for Many Glacier Hotel Chapters Objectives Cornerstones The purpose of this integrated exercise is to demonstrate the interrelationship between cost estimation techniques and subsequent use of cost information. In particular, this exercise illustrates how the variable and fixed cost information estimated from a high-low analysis can be used in a single and multiple product CVP analysis. Using the High-Low Method to Estimate Variable and Fixed Costs Located on Swiftcurrent Lake in Glacier National Park, Many Glacier Hotel was built in 1915 by the Great Northern Railway. In an effort to supplement its lodging revenue, the hotel decided in 2003 to begin manufacturing and selling small wooden canoes decorated with symbols hand painted by Native Americans living near the park. Due to the great success of the canoes, the hotel began manufacturing and selling paddles as well in 2006, Many hotel guests purchase a cance and paddles for use in self- guided tours of Swiftcurrent Lake. Because production of the two products began in different years, the canoes and paddles are produced in separate production facilities and employ different laborers. Each cance sells for $500, and each paddle sells for $50. A 2006 fire destroyed the hotel's accounting records. However, a new system put into place before the 2007 season provides the following aggre- gated data for the hotel's cance and paddle manufacturing and marketing activities: Year Manufacturing Data: Number of Canoes Year Manufactured 2012 2011 2010 2009 2008 2007 Total Canoe Manufacturing Costs 5106,000 115,000 108,000 122.000 130,000 140,000 2012 2011 2010 2009 2008 2007 Number of Paddles Manufactured 900 1,200 1,000 1.100 1,400 1,700 Total Paddle Manufacturing Costs $38,500 49,000 42,000 45.500 56,000 66,500 Making the Connection Cont Behavior and Cost-Volume-Profit Analysis for Many Glacier Hotel 250 Marketing Data: Number of Year Canoes Sold 2012 2011 2010 2009 2008 2007 Total Canoe Marketing Costs ating Costs $45.000 47.500 44,000 51,000 55.000 60.000 Year 2012 2011 2010 2009 Number of Paddles Sold 900 1.200 1.000 Total Paddle Marketing Costs $ 7,500 9,000 8,000 8,500 10,000 11,500 2008 2007 Required: 1. High-Low Cost Estimation Method a. Use the high-low method to estimate the per-unit variable costs and total fixed costs for the canoe product line. b. Use the high-low method to estimate the per unit variable costs and total fixed costs for the paddle product line 2. Cost-Volume-Profit Analysis, Single-Product Setting Us CVP analysis to calculate the break-even point in units for a. The canoe product line only fie, single-product setting b. The paddle product line only .e.,single-product setting) 3. Cost-Volume-Profit Analysis, Multiple-Product Setting The hotel's accounting system data show an average sales mix of approximately 300 cances and 1,200 paddles each season. Significantly more paddles are sold relative to cances because some inexperienced canoe guests accidentally break one or more paddles, while other guests purchase additional paddles as presents for friends and relatives. In addition, for this multiple product CVP analysis, assume the existence of an additional $30,000 of common foxed costs for a customer service hotline used for both cance and paddle customers. Use CVP analysis to calculate the break-even point in units for both the canoe and paddle product lines combined fe, the multiple product settingl. 4 Cost Classification Classify the manufacturing costs, marketing costs, and customer service hotline costs either as production expenses or period expenses. 6. For the period expenses, further classify them into either selling expenses or general and administrative expenses. 5. Sentit Cow-Volume-Profit Analysis and Production Versus Period Expenses Miltiple Product Setting both the variable and fixed production expenses (refer to your answer to Requirement 11 ano ated with the canoe product line increased by 5% (beyond the estimate from the high-low analy is, how many cances and paddles would need to be sold in order to earn a target income of 596,000? Assume the same sales mix and additional fixed costs as in Requirement 3. Margin of Safety Calculate the hotel's margin of safety both in units and in sales dollars) for Many Glacier Hotel a ming the same facts as in Requirement 3. and it sels 700 cances and 2.500 packles next year