Cost Behavior and Cost-Volume-Profit Analysis for Many Glacier Hotel

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 canoe 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 canoe 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 aggregated data for the hotel's canoe and paddle manufacturing and marketing activities:

BE units

canoes

b. The paddle product line only (i.e., single-product setting)

BE units

paddles

3. Cost-Volume-Profit Analysis, Multiple-Product Setting

The hotel's accounting system data show an average sales mix of approximately 300 canoes and 1,200 paddles each season. Significantly more paddles are sold relative to canoes 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 fixed costs for a customer service hotline used for both canoe and paddle customers. Use CVP analysis to calculate the break-even point in units for both the canoe and paddle product lines combined (i.e., the multiple-product setting).

Canoe BE units	canoes
Paddle BE units	paddles

5. Sensitivity Cost-Volume-Profit Analysis and Production Versus Period Expenses, Multiple-Product Setting

If both the variable and fixed production expenses (refer to your answer to Requirement 1) associated with the canoe product line increased by 5% (beyond the estimate from the high-low analysis), how many canoes and paddles would need to be sold in order to earn a target income of $96,000? Assume the same sales mix and additional fixed costs as in Requirement 3, and if required, round the number of packages in intermediate calculations up to the nearest whole number (for example, 10.1 would round up to 11).

Canoe target income units	canoes
Paddle target income units	paddles

6. Margin of Safety

Calculate the margin of safety (both in units and in sales dollars) for Many Glacier Hotel, assuming the same facts as in Requirement 3, and assuming it sells 700 canoes and 2,500 paddles next year. total MOS units above total BE units

$ MOS in sales dollars

Manufacturing Data: Number of Number of 9 Manufacturing YearManufactured Year Manufactured 3 2 3 Marketing Data Number of Canoes Sold Marketing Costs Year Paddles Sold Marketing Costs Number of 5 1,200 1,000 2 8 1,400 1,700