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	275		6,250
March	1,000		15,000
April	5,775		116,250
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
$fill in the blank da9837009040fd4_1	$fill in the blank da9837009040fd4_2

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	$fill in the blank da9837009040fd4_3
4,360	fill in the blank da9837009040fd4_4
5,775	fill in the blank da9837009040fd4_5

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.

c

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 83,800 units during the year.

	Cover-to-Cover Company	Biblio Files Company
Contribution margin ratio (percent)	fill in the blank c87fb9f8305bfbb_1%	fill in the blank c87fb9f8305bfbb_2%
Unit contribution margin	$fill in the blank c87fb9f8305bfbb_3	$fill in the blank c87fb9f8305bfbb_4
Break-even sales (units)	fill in the blank c87fb9f8305bfbb_5	fill in the blank c87fb9f8305bfbb_6
Break-even sales (dollars)	$fill in the blank c87fb9f8305bfbb_7	$fill in the blank c87fb9f8305bfbb_8

Income Statement - Cover-to-Cover

Cover-to-Cover Company Contribution Margin Income Statement For the Year Ended December 31, 20Y8
Sales		$419,000
Variable costs:
Manufacturing expense	$251,400
Selling expense	20,950
Administrative expense	62,850	(335,200)
Contribution margin		$83,800
Fixed costs:
Manufacturing expense	$5,000
Selling expense	4,000
Administrative expense	11,950	(20,950)
Operating income		$62,850

Income Statement - Biblio Files

Biblio Files Company Contribution Margin Income Statement For the Year Ended December 31, 20Y8
Sales		$419,000
Variable costs:
Manufacturing expense	$167,600
Selling expense	16,760
Administrative expense	67,040	(251,400)
Contribution margin		$167,600
Fixed costs:
Manufacturing expense	$86,750
Selling expense	8,000
Administrative expense	10,000	(104,750)
Operating income		$62,850

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 per Unit	Variable Cost per Unit
Basic	$5.00	$1.75
Deluxe	9.00	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 $330,330. Recall that the totals of all the sales mix percents must be 100%. Determine the amounts to complete the following table.

Type of Bookshelf	Percent of Sales Mix	Break-Even Sales in Units	Break-Even Sales in Dollars
Basic	fill in the blank 324218002f8afa0_1%	fill in the blank 324218002f8afa0_2	$fill in the blank 324218002f8afa0_3
Deluxe	fill in the blank 324218002f8afa0_4%	fill in the blank 324218002f8afa0_5	$fill in the blank 324218002f8afa0_6

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 $20,000 in the coming year, what must their amount of sales be?

2. If Biblio Files Company wants to increase its profit by $20,000 in the coming year, what must their amount of sales be?