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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