Mastery Problem: Cost-Volume-Profit Analysis

Cost Behavior

Cover-to-Cover Company is a manufacturer of shelving for books. The company has compiled the following cost data, and wants your help in determining the cost behavior. After reviewing the data, complete requirements (1) and (2) that follow.

Total Lumber Total Total Machine Utilities Depreciation Units Produced Cost Cost Cost $125,000 10,000 shelves $110,000 20,000 shelves 220,000 $13,500 25,000 125,000 40,000 shelves 440,000 48,000 125,000 125,000 50,000 shelves 550,000 59,500 1. Determine whether the costs in the table are variable, fixed, mixed, or none of these. Lumber Variable Cost Utilities Mixed Cost Depreciation Fixed Cost 2. For each cost, determine the fixed portion of the cost, and the per-unit variable cost. If there is no amount or an amount is zero, enter "0". Recall that, for N = Number of Units Produced, Total Costs = (Variable Cost Per Unit x N) + Fixed Cost. Complete the following table with your answers. Round variable portion of cost (per unit) answers to two decimal places. Cost Lumber Fixed Portion of Cost 0 2,000 125,000 Variable Portion of Cost (per Unit) $ 11.00 .15 0 Utilities Depreciation High-Low Biblio Files Company is the chief competitor of Cover-to-Cover Company in the bookshelf business. Biblio Files is analyzing its manufacturing costs, and has compiled the following data for the first six months of the year. After reviewing the data, answer questions (1) through (3) that follow. Units Produced Total Cost 4,360 units $65,600 January February 300 6,250 March 15,000 1,000 6,800 April 103,750 May 1,750 32,500 June 3,015 48,000 1. From the data previously provided, help Biblia Files Company estimate the fixed and variable portions of its total costs using the high-low method. Recall that Total Costs = (Variable Cost Per Unit x Number of Units Produced) + Fixed Cost. Complete the following table. Total Fixed Cost Variable Cost per Unit 2. With your Total Fixed Cost and Variable Cost per Unit from the high-low method, compute the total cost for the following values of N (Number of Units Produced). Number of Units Produced Total Cost 3,500 4,360 6,800 Contribution Margin Review the contribution margin income statements for Cover-to-Cover Company and Biblio Files Company on their respective Income Statements. Complete the following table from the data provided on the income statements. Each company sold 75,800 units during the year. Cover-to-Cover Biblio Files Company Company Contribution margin ratio (percent) Unit contribution margin Break-even sales (units) Break-even sales (dollars) Cover-to-Cover Company Contribution Margin Income Statement For the Year Ended December 31, 2048 Sales $379,000 Variable costs: $227,400 Manufacturing expense Selling expense 18,950 56,850 Administrative expense (303,200) Contribution margin $75,800 Fixed costs: Manufacturing expense $5,000 Selling expense 4,000 9,950 Administrative expense (18,950) $56,850 Operating income Income Statement - Biblio Files Biblio Files Company Contribution Margin Income Statement For the Year Ended December 31, 2048 Sales $379,000 Variable costs: Manufacturing expense $151,600 Selling expense 15,160 60,640 Administrative expense (227,400) Contribution margin $151,600 Fixed costs: Manufacturing expense $76,750 Selling expense 8,000 Administrative expense 10,000 (94,750) Operating income $56,850 Sales Mix Biblio Files Company is making plans for its next fiscal year, and decides to sell two new types of bookshelves, Basic and Deluxe. The company has compiled the following estimates for the new product offerings. Type of Bookshelf Sales Price per Unit Variable Cost per Unit Basic $1.75 $5.00 9.00 Deluxe 8.10 The company is interested in determining how many of each type of bookshelf would have to be sold in order to break even. If we think of the Basic and Deluxe products as components of one overall enterprise product called "Combined," the unit contribution margin for the Combined product would be $2.31. Fixed costs for the upcoming year are estimated at $325,710. Recall that the totals of all the sales mix percents must be 100%. Determine the amounts to complete the following table. Type of Bookshelf Percent of Break-Even Sales Break-Even Sales Sales Mix in Units in Dollars Basic $ Deluxe Target Profit Refer again to the income statements for Cover-to-Cover Company and Biblio Files Company on their respective Income Statement. Note that both companies have the same sales and net income. Answer questions (1) - (3) that follow, assuming that all data for the coming year is the same as the current year, except for the amount of sales. 1. If Cover-to-Cover Company wants to increase its profit by $20,000 in the coming year, what must their amount of sales be? 2. If Biblio Files Company wants to increase its profit by $20,000 in the coming year, what must their amount of sales be? HA