Exercise 13.1 INTRASPORT

The sport-equipment producing company INTRASPORT has two divisions, SKIS and TENTS. Each division produces an economy and comfort version of its product line. These versions differ in the quality of the material used for production. Production time of comfort products is about 10 percent longer compared to economy products.

Data about production and sales volumes as well as selling prices and variable costs in the year 2015 are as follows. There is no opening stock of products at the beginning of 2015.

Division	SKIS		TENTS
Product	Economy	Comfort	Economy	Comfort
Production volume (pieces)	400	800	500	300
Sales volume (pieces)	350	800	500	250
Selling price (EUR/piece)	180	250	150	160
Var. prod. costs (EUR/piece)	120	160	65	100
Var. distr. costs (EUR/piece)	10	10	5	5

All fixed costs are indirect. Fixed production costs and distribution expenses are measured at the divisional level. Both divisional, as well as headquarters administrative expenses, occur. Data for the year 2015 (in EUR per year) are as follows:

Division	SKIS	TENTS
Fixed production costs	10 000	27 000
Fixed distribution costs	8 000	12 000
Fixed administrative expenses divisions	6 000	21 000
Fixed administrative expenses headquarters	40 000

Questions and tasks:

1. Prepare the profit and loss statement for the whole company using cost classification by function and quantify EBIT. Consider (actual) variable costing for inventory valuation.
2. Quantify the closing balance of stocks of finished goods if (actual) variable costing is used for inventory valuation and compare that with the situation if (actual) absorption costing is applied.
3. Quantify average contribution margin to revenues for the whole company.
4. Quantify the break-even point for the company considering the actual product mix.

Exercise 13.3 Bicycle producer

BIKE company produces and sells 3 different types of bicycles SPORT (distributed to specialized bike shops), RELAX (delivered to hypermarkets) and BABY (distributed to kids shops).

In the last quarter (i.e. three months), costs of the department Quality testing were 301 620 CZK. Two activities were realized in this department, namely standard checking of quality for all produced bicycles and special quality testing for a sample of SPORT and BABY bicycles which is realized once per month. Time is considered the main cost driver, which can be used for cost assignment in both activities.

The volume of products and time needed for each activity were as follows:

Product	SPORT	RELAX	BABY
Volume of production (per quarter)	500	1 000	700
Standard quality checking (in minutes per piece)	20	15	18
Special quality testing (in hours per month)	20	-	25

Questions and tasks:

1. Use the typology of activities and cost drivers according to Kaplans and Coopers Activity-based costing approach to explain the cost assignment in the Quality testing department.
2. Discuss appropriate cost assignment method and quantify costs of quality checking per one piece of each type of bicycle.
3. Explain if the quality testing costs shall be considered as variable costs or fixed costs.