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 Utilities Total Total Machine Depreciation Cost Cost Cost 5,000 shelves $60,000 $7,250 $120,000 10,000 shelves 120,000 13,000 120,000 20,000 shelves 240,000 24,500 120,000 25,000 shelves 300,000 30,250 120,000 1. Determine whether the costs in the table are variable, fixed, mixed, or none of these. Lumber Utilities Depreciation 2. For each cost, de Number of Units Pro (per unit) answer Variable Cost Fixed Cost Mixed Cost None of these on 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 = Variable Cost Per Unit x N) + Fixed Cost. Complete the following table with your answers. Round variable portion of cost ces. 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 300 6,250 March 1,000 15,000 April 6,800 103,750 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 6,800 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 fixed costs are zero. c. The high-low 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. b C jin d tion margin income statements for Cover-to-Cover Company and Biblio Files Company on their respective Income Statements. Complete the following 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 80,800 units during the year. Contribution margin ratio (percent) Unit contribution margin Break-even sales (units) Break-even sales (dollars) Cover-to-Cover Company Biblio Files Company % % Income Statement - Cover-to-Cover Cover-to-Cover Company Contribution Margin Income Statement For the Year Ended December 31, 20Y8 Sales $404,000 Variable costs: Manufacturing expense $242,400 Selling expense 20,200 Administrative expense 60,600 (323,200) Contribution margin $80,800 Fixed costs: Manufacturing expense $5,000 Selling expense 4,000 Administrative expense 11,200 (20,200) Operating income $60,600 Income Statement - Biblio Files Biblio Files Company Contribution Margin Income Statement For the Year Ended December 31, 20Y8 Sales $404,000 Variable costs: Manufacturing expense $161,600 Selling expense 16,160 Administrative expense 64,640 (242,400) Contribution margin $161,600 Fixed costs: Manufacturing expense $83,000 Selling expense 8,000 Administrative expense 10,000 (101,000) $60,600 Operating income 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 Variable Cost per Unit per Unit Basic Deluxe $5.00 9.00 $1.75 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 $325,710. Recall that the totals of all the sales mix percents must be 100%. Determine the amounts to complete the following table. Type of Bookshelf Basic Break-Even Sales Break-Even Sales Percent of Sales Mix in Units % in Dollars Deluxe % 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. 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 $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? 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 fixed costs and provide operating income. b. Cover-to-Cover Company's contribution margin ratio is lower, meaning that it's more efficient 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. a C d Previous Next