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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

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 4,800 96,250
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 b0250b0d6fe4fc6_1 $fill in the blank b0250b0d6fe4fc6_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 b0250b0d6fe4fc6_3
4,360 fill in the blank b0250b0d6fe4fc6_4
4,800 fill in the blank b0250b0d6fe4fc6_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.

Feedback

Review the high-low method, and use the smallest and largest levels of production in your computation.

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 75,800 units during the year.

Cover-to-Cover Company Biblio Files Company
Contribution margin ratio (percent) fill in the blank 543dccfd500ffae_1% fill in the blank 543dccfd500ffae_2%
Unit contribution margin $fill in the blank 543dccfd500ffae_3 $fill in the blank 543dccfd500ffae_4
Break-even sales (units) fill in the blank 543dccfd500ffae_5 fill in the blank 543dccfd500ffae_6
Break-even sales (dollars) $fill in the blank 543dccfd500ffae_7 $fill in the blank 543dccfd500ffae_8

Feedback

Review the definitions of contribution margin ratio and unit contribution margin. Also review the formulas for break-even in terms of units sold and sales dollars.

Income Statement - Cover-to-Cover

Cover-to-Cover Company Contribution Margin Income Statement For the Year Ended December 31, 20Y8
Sales $379,000
Variable costs:
Manufacturing expense $227,400
Selling expense 18,950
Administrative expense 56,850 (303,200)
Contribution margin $75,800
Fixed costs:
Manufacturing expense $5,000
Selling expense 4,000
Administrative expense 9,950 (18,950)
Operating income $56,850

Income Statement - Biblio Files

Biblio Files Company Contribution Margin Income Statement For the Year Ended December 31, 20Y8
Sales $379,000
Variable costs:
Manufacturing expense $151,600
Selling expense 15,160
Administrative expense 60,640 (227,400)
Contribution margin $151,600
Fixed costs:
Manufacturing expense $76,750
Selling expense 8,000
Administrative expense 10,000 (94,750)
Operating income $56,850

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 $332,640. 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 b6be8b047ff304e_1% fill in the blank b6be8b047ff304e_2 $fill in the blank b6be8b047ff304e_3
Deluxe fill in the blank b6be8b047ff304e_4% fill in the blank b6be8b047ff304e_5 $fill in the blank b6be8b047ff304e_6

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