Question
Integrative Exercise Cost Behavior and Cost-Volume-Profit Analysis for Many Glacier Hotel Using the High-Low Method to Estimate Variable and Fixed Costs Located on Swiftcurrent Lake
Integrative Exercise Cost Behavior and Cost-Volume-Profit Analysis for Many Glacier Hotel
Using the High-Low Method to Estimate Variable and Fixed Costs
Located on Swiftcurrent Lake in Glacier National Park, Many Glacier Hotel was built in 1915 by the Great Northern Railway. To supplement its lodging revenue, the hotel decided to begin manufacturing and selling small wooden canoes decorated with symbols hand painted by Native Americans living near the park. The canoes were a great success, so a couple of years later the hotel began manufacturing and selling paddles. Many hotel guests purchase a canoe and paddles for use in self-guided tours of Swiftcurrent Lake. Because production of the two products began in different years, the canoes and paddles are produced in separate production facilities and employ different laborers. Each canoe sells for $540, and each paddle sells for $60. About 15 years ago, a fire destroyed the hotel's accounting records. A new system put into place before the next season provides the following aggregated data for the hotel's canoe and paddle manufacturing and marketing activities (Years 1 through 12 give the data for the years in which the new accounting system was active):
Year | Number of Canoes Manufactured | Total Canoe Manufacturing Costs | Year | Number of Paddles Manufactured | Total Paddle Manufacturing Costs |
---|---|---|---|---|---|
1 | 250 | $103,000 | 1 | 900 | $38,500 |
2 | 240 | 115,000 | 2 | 1,200 | 49,000 |
3 | 275 | 128,000 | 3 | 1,000 | 44,000 |
4 | 310 | 114,000 | 4 | 1,100 | 45,500 |
5 | 350 | 141,500 | 5 | 1,400 | 52,000 |
6 | 380 | 132,000 | 6 | 1,700 | 66,500 |
7 | 415 | 146,500 | 7 | 1,720 | 66,300 |
8 | 430 | 132,000 | 8 | 1,850 | 71,750 |
9 | 450 | 146,100 | 9 | 1,900 | 72,000 |
10 | 470 | 155,000 | 10 | 2,020 | 78,900 |
11 | 480 | 136,000 | 11 | 2,050 | 78,200 |
12 | 500 | 167,000 | 12 | 2,200 | 84,000 |
Year | Number of Canoes Sold | Total Canoe Marketing Costs | Year | Number of Paddles Sold | Total Paddle Marketing Costs |
---|---|---|---|---|---|
1 | 250 | $45,000 | 1 | 900 | $7,500 |
2 | 240 | 47,000 | 2 | 1,200 | 9,000 |
3 | 275 | 43,000 | 3 | 1,000 | 8,000 |
4 | 310 | 51,000 | 4 | 1,100 | 8,500 |
5 | 350 | 62,000 | 5 | 1,400 | 10,000 |
6 | 380 | 53,000 | 6 | 1,700 | 11,500 |
7 | 415 | 68,500 | 7 | 1,720 | 11,600 |
8 | 430 | 63,000 | 8 | 1,850 | 12,250 |
9 | 450 | 65,000 | 9 | 1,900 | 12,500 |
10 | 470 | 67,000 | 10 | 2,020 | 13,100 |
11 | 480 | 52,000 | 11 | 2,050 | 13,250 |
12 | 500 | 73,000 | 12 | 2,200 | 14,000 |
FIND:
5. Sensitivity Cost-Volume-Profit Analysis and Production Versus Period Costs, Multiple- Product Setting
If both the variable and fixed production costs (refer to your answer to Requirement 1) associated with the canoe product line increased by 5% (beyond the estimate from the high-low analysis), how many canoes and paddles would need to be sold in order to earn a target income of $96,000? Assume the same sales mix and additional fixed costs as in Requirement 3.
Line Item Description | Answer |
---|---|
Canoe target income units | |
Paddle target income units |
6. Margin of Safety (MOS)
Calculate the hotel's margin of safety (both in units and in sales dollars) for Many Glacier Hotel, assuming the same facts as in Requirement 3, and assuming that it sells 650 canoes and 2,400 paddles next year. The total MOS units equal?
The MOS in sales dollars equals?
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