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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

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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 Total Total Machine Units Lumber Utilities Depreciation Produced Cost Cost Cost 12,000 shelves $120,000 $15,300 $145,000 24,000 shelves 240,000 29,100 145,000 48,000 shelves 480,000 56,700 145,000 60,000 shelves 600,000 70,500 145,000 1. Determine whether the costs in the table are variable, fixed, mixed, or none of these. Lumber Variable Cost 3 J Utilities 'Miid cast v J Depreciation m J 2. For each cost, determine the fixed portion of the cost, and the perunit variable cost. If there is no amount or an amount is zero, enter "0"- Recall thati for N = Number of Units Produced, Total Costs = (Variable Cost Per Urlit x N) + Fixed Cost. Complete the following table with your answers. Round variable portion of cost (per unit) answers to two decimal places. Fixed Portion Variable Portion Cost of Cost of Cost (per Unit) Lumber $ $ Utilities Depreciation Feedback Check My Work Review the definitions for fixed, variable, and mixed costs, and the relationships between units produced and total cost for each type of cost. Recall that the high- low method may be used to separate a cost into its fixed and variable components. High-Low Biblio Files Company is the chief competitor of Coverto-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 January 4,360 units $65,600 February 300 6,250 March 1,000 15,000 April 5,800 116,250 May 1,750 32,500 June 3,015 48,000 1. From the data previously provided, help Bibiio Files Company estimate the fixed and variable portions of its total costs using the highlow method. Recall that Total Costs = (Variable Cast 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 highlow 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 5,800 3. Why does the total cost computed for 4,360 units not match the data for January? 3. The highlow method is accurate only for months in which production is at full capacity. to. The high-low method only gives accurate data when xed costs are zero. c. The highlow method gives a formula for the estimated total cost and may not match levels of production other than the highest and lowest. d. The high-low method gives accurate data only for levels of production outside the relevant range. ch Feedback Check My Work Review the high-low method, and use the smallest and largest levels of production in your computation. Contribution Margin Review the contribution margin income statements for Cover-toCover Company and Biblio Files Company on their respective Income Statements. Complete the followin table from the data provided on the income statements. Each company sold 77,800 units during the year. Cover-toCover Biblio Files Company Company Contribution margin ratio (percent) % \"/0 _ V . _ $ $ Unit contribution margin Breakeven sales (units) $ $ Break-even sales (dollars) Feedback Check My Work Review the denitions of contribution margin ratio and unit contribution margin. Also review the formulas for breakeven in terms of units sold and sales dollars. Income Statement - Cover-to-Cover Cover-to-Cover Company Contribution Margin Income Statement For the Year Ended December 31, 20Y8 Sales $389,000 Variable costs: Manufacturing expense $233,400 Selling expense 19,450 Administrative expense 58,350 (311,200) Contribution margin $77,800 Fixed costs: Manufacturing expense $5,000 Selling expense 4,000 Administrative expense 10,450 (19,450) Operating income $58,350 Income Statement - Biblio Files Biblio Files Company uuuu quuuu I-Iulgul "mum: JLELCIIICIIL For the Year Ended December 31, 20V8 Sales $389,000 Variable costs: Manufacturing expense $ 155,600 SeJIihg expense 15,560 Administrative expense 62,240 (233,400) Contribution margin $155,600 Fixed costs: Manufacturing expense $79,250 Selling expense 8,000 Administrative expense 10,000 (97,250) Operating income $58,350 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 followin estimates for the new product offerings. Type of Sales Price Variable Cost Bookshelf per Unit per Unit Basic $5.00 $1.75 Deluxe 9.00 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 product 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 $337,260. 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 Sales Mix Break-Even Sales in Units Break-Even Sales in Dollars Basic $ 0/0 Deluxe $ /o Feedback Check My Work Review the definition of break-even point. Recall that the Combined unit contribution margin is given by [(Basic unit contribution margin) x (Basic percent of sales mix)] 4- [(Deluxe unit contribution margin) X (Deluxe percent of sales mix)]. Since these percents must add up to 100%, we have the following: (Basic percent of sales mix) + (Deluxe percent of sales mix) = 100%, so that (Deluxe percent of sales mix) : 100% - (Basic percent of sales mix) Target Prot 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 prot by $20,000 in the coming year, what must their amount of sales be? 35 2. If Biblio Files Company wants to increase its profit by $20,000 in the coming year, what must their amount of sales be? $ 3. What would explain the difference between your answers for (1) and (2)? a. Biblio Files Company has a higher contribution margin ratio, and so more of each sales doilar is available to cover fixed costs and provide operating income. b. CovertoCover Company's contribution margin ratio is lower, meaning that it's more efficient in its operations. c. The companies have goals that are not in the relevant range. d. The answers are not different; each company has the same required sales amount for the coming year to achieve the desired target prot. a'"v' J Feedback Check My Work Examine the differences between the two companies, including the differences in elements of the target profit formula. Feedback Check My Work Partially correct

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