Managerial Accounting Case Assignment 1 Cost-Volume-Profit Analysis Point value: 100 points Due date: ___________ Requirements: 1. Answer the questions at the end of the case assignment. Provide all supporting calculations. 2. 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. Rounding: when calculating break even round the CM ratio as a decimal to four decimal places. Example: .4957 or 49.57%. World Travelers Corporation, Inc. makes two products European Standard and European Deluxe. Selected information on the products is given below: European Standard European Deluxe Selling Price per unit: $200.00 $300.00 Variable expenses per unit: Production $110.00 $210.00 Commission (10% of selling price) $20.00 $30.00 The company has the following fixed costs: Per Month Fixed production costs $160,000 Advertising expense 150,000 Administrative salaries 110,000 Total: 420,000 Sales, in units, over the past two months have been as follows: European Standard European Deluxe Total January (units sold) 10,000 5,000 15,000 February (units sold) 5,000 10,000 15,000 Required: 1. Prepare contribution income statements for January and February. Use Exhibit 5-4 on page 211 as an example. 2. Compute the companys break-even point (BEP) in dollar sales for January and February. 3. To meet customer demand the company decides to use a higher quality material for the European Deluxe product starting in the month of March. This decision drives the production cost to $255 per unit. Prepare a contribution income statement for March assuming that the activity matches the activity level in February: European Standard European Deluxe Total March (units sold) 5,000 10,000 15,000 4. Compute the companys break-even point in dollar sales for March. 5. Assume that in addition to the cost structure change in March, the entire 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 $450,000. 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 decisions 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 and efficiency for the company? Write an official memo to the president of the company to disclose your findings and possible recommendations. Case 1 Managerial Accounting Grading Rubric Student Name: ________________________________________ Date: ____________________ Item Maximum Score Instruction 1. Contribution income statements for January and February 34 The information is organized similarly to the example given in Exhibit 5-4 on page 211. Accurate calculations for the two products and the company as a whole are present in total (including sales, variable expenses, contribution margin, fixed expenses and net operating income) and per unit and as ratios where applicable. Instruction 2. Break-even point for January and February 8 January and February BEP calculations are accurate. Supporting calculations are present for the months of January and February. Instruction 3. Contribution income statement for March 17 The information is organized similarly to the example given in Exhibit 5-4 on page 211. Accurate calculations for the two products and the company as a whole are present in total (including sales, variable expenses, contribution margin, fixed expenses and net operating income) and per unit and as ratios where applicable. Instruction 4. Break-even point for March 4 BEP Calculations are accurate for the month of March. Supporting calculations are present for the month of March. Instruction 5. Contr. Inc. statement and BEP for March under new cost structure 21 The information is organized similarly to the example given in Exhibit 5-4 on page 211. Accurate calculations for the two products and the company as a whole are present in total (including sales, variable expenses, contribution margin, fixed expenses and net operating income) and per unit and as ratios where applicable. Instruction 6. Memo to the companys CFO 10 Memo is typed and appropriate format for formal communication is used. Adequate analysis on BEP is present and recommendations for improved commission structure are given. Presentation of Case Assignment 6 The case is presentable, clean, and organized in order of the requirements