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Overview: Classifying a companys costs allows for an in-depth analysis of the impact that changes in output have on revenues, costs, and net income or net loss. A cost-volume-profit (CVP) analysis will be completed in order to determine the breakeven point. Relevant costs will be used to prepare a flexible budget. Additionally, an appropriate costing system should be selected and the choice should be substantiated with reasonable rationale. Finally, a memo should be prepared for management that summarizes the results of the quantitative analysis and makes recommendations for an optimal costing system to be ethically used by key decision makers. For Milestone One, you will use the MDE Manufacturing Budget (Table I) to analyze costs, contribution margin, and breakeven point for the bird feeder division of the company. In Tab 1 of your Student Workbook, classify costs as either product or period costs. Briefly explain the difference between the types of costs. Then, analyze the actual costs and, using Tab 2 of your Student Workbook, complete a cost-volume-profit analysis to determine how many bird feeders must be sold at the current cost and sales price level to earn a 10% profit and how much the sales price would have to increase to earn a 10% profit at the same cost and sales volume level. Submit the Student Workbook with Tabs 1 and 2 completed with your cost calculations and a 12 page Word document that explains the implications of your findings and addresses all of the critical elements in Section I.
I. Sales and Manufacturing Expenses: Budget and Actual (2014)
You will use this table to complete Milestones One and Two.
Budget ($) | Actual ($) | |
Sales | 1,050,000 | 991,700 |
Expenses | ||
Materials Cedar | 225,000 | 248,160 |
Materials Plastic | 37,500 | 37,741 |
Factory Worker Labor | 300,000 | 332,760 |
Materials Indirect | 3,000 | 2,585 |
Factory Depreciation | 78,000 | 78,000 |
Factory Utilities | 12,000 | 12,000 |
Factory Maintenance and Repairs | 5,000 | 4,500 |
Shipping ($2.25/each) | 112,500 | 105,750 |
Sales Commissions ($2.00/unit sold) | 100,000 | 94,000 |
Office Rent | 12,000 | 12,000 |
Advertising | 20,000 | 20,000 |
Liability insurance | 5,000 | 5,000 |
Office Depreciation | 1,000 | 1,000 |
Office Salaries | 48,000 | 48,000 |
Total Expenses | 959,000 | 1,001,496 |
II. Contribution Margin: Static Budget and Actual Results (2014)
You will use this table to complete Milestone Two.
Actual Results | Static Budget Amount | |
Units Sold | 47,000 | 50,000 |
Revenues ($) | 991,700 | 1,050,000 |
Manufacturing Costs ($) | ||
Variable | 621,246 | 565,500 |
Fixed | 94,500 | 95,000 |
Gross Margin | 275,954 | 389,500 |
Milestone One, Part I | ||
Product Costs | ||
Period Costs | ||
Totals | Totals | ||||||||||
Budget | Actual | ||||||||||
Sales Price per Unit | |||||||||||
Variable Costs | |||||||||||
Materials - Cedar | |||||||||||
Materials - Plastic | |||||||||||
Factory Worker Labor | |||||||||||
Materials - Indirect | |||||||||||
Shipping ($2.25/ea) | |||||||||||
Sales Commissions ($2/unit sold) | |||||||||||
Variable Cost per Unit | |||||||||||
Contribution Margin | |||||||||||
Fixed Costs | |||||||||||
Factory Depreciation | |||||||||||
Factory Utilities | |||||||||||
Factory Maintenance and Repairs | |||||||||||
Office Rent | |||||||||||
Advertising | |||||||||||
Liability Insurance | |||||||||||
Office Depreciation | |||||||||||
Office Salaries | |||||||||||
Total Fixed Costs | |||||||||||
Using Budgeted Amounts | |||||||||||
Breakeven Point - | Breakeven Point - | ||||||||||
Using Actual Amounts | Units at Current Sales Price | ||||||||||
+ 10,000 profit | |||||||||||
Using actual amounts | New Contribution Margin | ||||||||||
+ 10,000 profit | Current Variable Costs | ||||||||||
New Sales Price |
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