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 Utilities Lumber Units Produced Total Machine Depreciation Cost Cost Cost 13,000 shelves $130,000 $16,950 26,000 shelves 260,000 31,900 $125,000 125,000 125,000 520,000 61,800 52,000 shelves 65,000 shelves 650,000 76,750 125,000 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. Fixed Portion Variable Portion Cost of Cost of Cost (per Unit) Fixed Portion of Cost Variable Portion of Cost (per Unit) Cost Lumber $ o 10 Utilities 2,000 1.15 Depreciation 125,000 0 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 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 April 8,775 15,000 176,250 32,500 May 1,750 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 750 20 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 70,750 4,360 87,950 8,775 176,250 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. 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 77,800 units during the year. Cover-to-Cover Biblio Files Company Company Contribution margin ratio (percent) X % % Unit contribution margin $ $ Break-even sales (units) Break-even sales (dollars) $ Feedback Check My Work 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, 2018 Sales $389,000 Variable costs: Income Statement - Cover-to-Cover Cover-to-Cover Company Contribution Margin Income Statement For the Year Ended December 31, 2018 $389,000 Sales Variable costs: $233,400 Manufacturing expense Selling expense Administrative expense 19,450 58,350 (311,200) Contribution margin $77,800 Fixed costs: $5,000 Manufacturing expense Selling expense Administrative expense 4,000 10,450 (19,450) $58,350 Operating income Income Statement - Biblio Files Biblio Files Company Contribution Margin Income Statement For the Year Ended December 31, 2048 $389,000 Sales Variable costs: $155,600 Manufacturing expense Selling expense 15,560 Administrative expense 62,240 (233,400) Contribution margin $155,600 Fixed costs: Manufacturing expense $79,250 8,000 Selling expense 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 following estimates for the new product offerings. Sales Price Variable Cost Type of 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 $334,950. Recall that the totals of all the sales mix percents must be 100%. Determine the amounts to complete the following table. Type of Percent of Break-Even Sales Break-Even Sales