Managerial Accounting

Case Assignment 1

Cost-Volume-Profit Analysis

Point value: 100 points

Due date: October 19^th, 2015

Requirements:

Answer the questions at the end of the case assignment.

Provide all supporting calculations.

Summarize the results of your analysis for requirement six in a one-page report.

This report must be typed.

Note: You may not work with other students on this case. The submitted work must be your own work. To ensure successful completion of the course it is essential that you submit the case assignment by its due date.

Round two decimal points where rounding is necessary.

Eco Luggage Corporation, Inc. produces high quality luggage. The companys has two products Standard Carrier and Deluxe Carrier. Selected information on the carriers is given below:

	Standard Carrier	Deluxe Carrier
Selling Price per carrier	$180.00	$250.00
Variable expenses per carrier:
Production	$105.00	$135.00
Commission (10% of selling price)	$18.00	$25.00

The company has the following fixed costs:

	Per Month
Fixed production costs	$150,000
Advertising expense	130,000
Administrative salaries	80,000
Total:	360,000

Sales, in units, over the past two months have been as follows:

	Standard Carrier	Deluxe Carrier	Total
November(units sold)	8,000	4,000	12,000
December (units sold)	4,000	8,000	12,000

Required:

1. Prepare contribution income statements for November and December. Use Exhibit 5-4 on page 211 as an example.

2. Compute the companys break-even point (BEP) in dollar sales for November and December.

3. To meet customer demand the company decides to use a higher quality material for the Deluxe Carrier starting in the month of January. This decision drives the production cost to $190 per unit. Prepare a contribution income statement for January assuming that the activity matches the activity level in December:

	Standard Carrier	Deluxe Carrier	Total
January (units sold)	4,000	8,000	12,000

4. Compute the companys break-even point in dollar sales for January.

5. Assume that in addition to the cost structure change, the Sales Department is requesting a switch from commission compensation to salary compensation. This will eliminate the Commission variable cost but will create additional fixed cost of $300,000. Prepare a contribution income statement and compute the break-even point in dollar sales for the new cost structure (use the data given in instructions 3 & 5).

6. The CFO of the company assigns you to research the following two issues:

To analyze the impact on the break-even point in instructions 3 and 5. Do you support the decision made? Why or why not.

Perform an analysis on the current and proposed sales compensation structure. What strategies can be implemented in the sales commission structure to result in increased profits for the company?

Write an official memo to the president of the company to disclose your findings and possible recommendations.