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.

Units Produced	Total Lumber Cost	Total Utilities Cost	Total Machine Depreciation Cost
14,000 shelves	$168,000	$17,600	$145,000
28,000 shelves	336,000	33,700	145,000
56,000 shelves	672,000	65,900	145,000
70,000 shelves	840,000	82,000	145,000

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	Fixed Portion of Cost	Variable Portion of Cost (per Unit)
Lumber	$fill in the blank 3463b8000fd301a_4	$fill in the blank 3463b8000fd301a_5
Utilities	fill in the blank 3463b8000fd301a_6	fill in the blank 3463b8000fd301a_7
Depreciation	fill in the blank 3463b8000fd301a_8	fill in the blank 3463b8000fd301a_9

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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
January	4,360	units	$65,600
February	275		6,250
March	1,000		15,000
April	5,775		88,750
May	1,750		32,500
June	3,015		48,000

1. From the data previously provided, help Biblio 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
$fill in the blank 671df703c00efbf_1	$fill in the blank 671df703c00efbf_2

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	$fill in the blank 671df703c00efbf_3
4,360	fill in the blank 671df703c00efbf_4
5,775	fill in the blank 671df703c00efbf_5

3. Why does the total cost computed for 4,360 units not match the data for January?

a. The high-low method is accurate only for months in which production is at full capacity.

b. The high-low method only gives accurate data when fixed costs are zero.

c. The high-low 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.

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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 80,800 units during the year.

	Cover-to-Cover Company	Biblio Files Company
Contribution margin ratio (percent)	fill in the blank 1eaa5703705707f_1%	fill in the blank 1eaa5703705707f_2%
Unit contribution margin	$fill in the blank 1eaa5703705707f_3	$fill in the blank 1eaa5703705707f_4
Break-even sales (units)	fill in the blank 1eaa5703705707f_5	fill in the blank 1eaa5703705707f_6
Break-even sales (dollars)	$fill in the blank 1eaa5703705707f_7	$fill in the blank 1eaa5703705707f_8

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Income Statement - Cover-to-Cover

Cover-to-Cover Company Contribution Margin Income Statement For the Year Ended December 31, 20Y8
Sales		$404,000
Variable costs:
Manufacturing expense	$242,400
Selling expense	20,200
Administrative expense	60,600	(323,200)
Contribution margin		$80,800
Fixed costs:
Manufacturing expense	$5,000
Selling expense	4,000
Administrative expense	11,200	(20,200)
Operating income		$60,600

Income Statement - Biblio Files

Biblio Files Company Contribution Margin Income Statement For the Year Ended December 31, 20Y8
Sales		$404,000
Variable costs:
Manufacturing expense	$161,600
Selling expense	16,160
Administrative expense	64,640	(242,400)
Contribution margin		$161,600
Fixed costs:
Manufacturing expense	$83,000
Selling expense	8,000
Administrative expense	10,000	(101,000)
Operating income		$60,600

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	$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 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 $346,500. 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	fill in the blank cf527400ef9203b_1%	fill in the blank cf527400ef9203b_2	$fill in the blank cf527400ef9203b_3
Deluxe	fill in the blank cf527400ef9203b_4%	fill in the blank cf527400ef9203b_5	$fill in the blank cf527400ef9203b_6

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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? $fill in the blank 6dec78092033056_1

2. If Biblio Files Company wants to increase its profit by $20,000 in the coming year, what must their amount of sales be? $fill in the blank 6dec78092033056_2

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 dollar is available to cover fixed costs and provide operating income.

b. Cover-to-Cover Companys contribution margin ratio is lower, meaning that its 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 profit.

genow.com/kostignment/akconsignment Main.doinvokeretaknassigneertSession.ocator:&inprogressefalse Update tery) Mastery Problem: Cost-Volume-Profit Analysis Cost Behavior Cost 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 cou behavior. Arter reviewing the data, complete requirements (1) and (2) that follow Total Total Total Machine Units Lumber Utilities Depreciation Produced Cost Cost 14,000 shelves $168,000 $17.600 $145,000 28.000 shelves 336,000 33,700 145,000 56,000 shelves 672.000 65,900 145,000 70,000 shelves 840,000 82,000 145,000 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 "o". Recall that, for N- Number of Units Produced, Total Costs - (Variable Cost Per Unit XN) + 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 Check My Work 3 more Check My Work uses remaining, Email Instructor Save and we Submit Assignment for Grading Depreciation Check My Wor 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 Biblo Pies Company is the chief competitor of Cover-to-Cover Company in the bookshelf business. Biblo Files in analyzing its manufacturing costs, and has compiled the following data for the first six months of the year. After reviewing the data, antwer questions (1) through () that follow Units Produced Total Cost January 4,360 units $65,600 February 275 5,250 March 1,000 15,000 April 5,775 88,750 May 1,750 32,500 June 3,015 48,000 1. From the data previously provided, help Bio 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) 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 5,775 3. Why does the total cost computed for 4,360 units not match the data for January? a. The high-low method is accurate only for months in which production is at full capacity b. The high-low method only gives accurate data when fuced costs are zero. c. The high-low 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. Check My Won 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-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 80,800 units during the year. Cover-to-Cover Biblio Files Check My Work 3 more Check My Work uses remaining Email Instructor Save and Exit Submit Assignment for Grading 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 80,800 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) Check My Wor Review the definitions of contribution margin ratio and unit contribution margin. Also review the formulas for break-even 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, 2048 Sales $404,000 Variable costs: Manufacturing expense $242,400 Callinn erence 2020 Check My Work more Check My Work uses remaining Email instructor Save and Et Submit Assignment for Grading Lo America AC Untitled now.com/kostignment/takeAssignmentMain.do?invokeretako AssignmentSessionLocatore&inprogress=false Upd ry) Income Statement - Cover-to-Cover Cover-to-Cover Company Contribution Margin Income Statement For the Year Ended December 31, 2018 Sales 5404,000 Viable costs: Manufacturing expense $242,400 Selling expense 20,200 Administrative expense 60,600 (323,200) Contribution margin $80,800 Fixed costs: Manufacturing expense $5,000 Selling expense 4,000 Administrative expense 11,200 (20,200) Operating income $60,600 Income Statement - Biblio Files Biblio Files Company Contribution Margin Income Statement For the Year Ended December 31, 2018 Sales $404,000 Variable costs: Manufacturing expense Seting expense $161,600 16,160 Check My Work 3 more Check My Work uses remaining Emad instructor Save and Et Submit Assignment for Grading Selling expense 16,160 Administrative expense 64,640 (242,400) Contribution margin $161,600 Fixed costs: Manufacturing expense $83,000 Sel expense 8,000 Adhistrative expense 10,000 (101,000) Operating income $60,600 Sales Mix billo 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 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 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 $346,500. 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 Type of Bookshelf Percent of Sales Mix Break-Even Sales Break-Even Sales in Units in Dollars Basic % Deluxe 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)] + [(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 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. Ir Biblio Files Company wants to increase its profit by $20,000 in the coming year, what must their amount of sales be? S 3. What would explain the difference between your answers for (1) and (2) 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. It cover-to-Cover Company wants to increase its profit by $20,000 in the coming year, what must their amount of sales be? 2. It BiblioFiles 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)? Biblio Piles Company has a higher contribution margin ratio, and so more of each sales dollar is available to cover fixed costs and provide operating income. b. Cover-to-Cover 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 ers are not different; each company has the same required sales amount for the coming year to achieve the desired target profit. d. The Feedback Check My Work Examine the differences between the two companies, including the differences in elements of the target pont formula Feedback Check My Work Partially correct