ge $|1$

Assignment Due Date: August $12,2024$

Should be typed on word document and be submitted in the class.

Do not email the assignment.

Cost$-$Volume$-$Profit with multiple Products, Sales Mix Changes,

Changes in Fixed and variable Costs

John Woodcrafting inc. began several years ago as one$-$person cabinet$-$making operation.

Employees were added as the business expanded.

Last year, sales volume totalled $$850,000.$ Volume for the first five months of the current year

totalled $$600,000,$ and sales were expected to be $1\mathrm{.}6$million for the entire year. Unfortunately,

the cabinet business in the region where John Woodcrafting inc. is located is highly

competitive. More than $200$ cabinet shops are competing for the same business.

John Woodcrafting inc. currently offers two different quality grades of cabinets: Grade $1$ and

Grade $2,$ with Grade $1$ being higher quality. The average unit selling prices, unit variable costs,

and direct fixed costs are as follows:

Unit Price Unit Variable Cost Direct Fixed Cost

Grade $1$ $$3,400$ $$2,686$ $$95,000$

Grade $2$ $$1,600$ $$1,328$ $$95,000$

Common fixed costs $($fixed costs not traceable to either cabinet$)$ are $$35,000.$ Currently, for

every three Grade $1$ cabinets sold, seven Grade $2$ cabinets are sold.

Required:

$1.$ Calculate the number of Grade $1$ and Grade $2$ cabinets that are expected to be sold

during the current year. $(4$ marks$)$

$2.$ Calculate the number of Grade $1$ and Grade $2$ cabinets that must be sold for the

company to break even. $(4$ marks$)$

$3.$ John Woodcrafting can buy computer$-$controlled machines that will make doors,

drawers, and frames. If the machines are purchased, the variable costs for each type of

cabinet will decrease by $9$ percent, but common fixed costs will increase by $$44,000.$

Compute the effect on operating income, and also calculate the new break$-$even point.

Assume the machines are purchased at the beginning of the sixth month. Fixed costs

for the company are incurred uniformly throughout the year. $(8$ Marks$)$

ACCT $222$ Managerial Accounting $1$ Summer Semester $2024$ Classroom E$3-17$

Assignment $$ Question $(25$ marks$)$ in class submission

Page $|2$

$4.$ Refer to the original data. John Woodcrafting is considering adding a retail outlet. This

will increase common fixed costs by $$70,000$ per year. As a result of adding the retail

outlet, the additional publicity and emphasis on quality will allow the firm to change

the sales mix to $1$:$1.$ The retail outlet is also expected to increase sales by $30$ percent.

Assume that the outlet is opened at the beginning of the sixth month. Calculate the

effect on the company$$s expected profits for the current year, and calculate the new

break$-$even point. Assume that fixed costs are incurred uniformly throughout the year.

$(9$ marks$)$