MP.06.01.ALGO Chapter 6 Mastery

Mastery Problem: Cost-Volume-Profit Analysis Cost Behavior Cover-to-Cover Company is a manufacturer of shelving for books. The company has complled the following cost data, and wants your help in determining the cost behavior. After reviewing the data, complete requirements (1) and (2) that follow. 1. Determine whether the covs in the table are variable, fixed, mised, of none of these. 2. For each cost, determine the fixed portian of the cost, and the per-unit variable cost, If there hi no ameunt of an amaunt is zero, enter " 0%. Recall that, for N. Number of Units Produced, Toral Costs = (Varieble Cost Per Unit x N ) + Fined Cost, Complete the following table with your answerk. Round variable portion of cost (per unit) answers to two decimal places. 2. For each cost, determine the fixed pertion of the cost, and the per-unit variable cest. If there is no amount or an amount is zero, enter "o. Recal that, for N = Number of Unats 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. fotion Eevew the definitions for ficet, variable, and mived costs, and the relationships between units produced and total cost for each type of cest, Aecall that the rifolt tow thethed mar be ised to sepsote s cost into as fised and variable comperents High-Lew following data for the frit six months of the yesc. Afer reviewing the data, answer quettans (1) trotogh (3) that follow. Biblio Files Company is the chlef competitor of Cover-to-Cover Company in the bookshelf business. Biblio Files is analyzing its manufacturing costs, and has complifed th following data for the first six months of the yeac. After reviewing the data; answer questions (1) through (3) that follow. 1. From the data previously provided, help B blio 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 Number of Units Produced) + Foxed Cost. Complete the following table. 3. Why does the total cost computed for 4,360 units not match the data for January? a. The high-lew method is accurate only for months in which production is at full capacity. b. The high-low method only gives accurate dats 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 Nightion method gives sccurate data only for levels of productian outside the relevant range. rowavition Review the high-low method, and use the smaliest and largest leveis of production in your computation. Review the contribution margin income statements for Cover-to-Cover Company and Biblio Flles Company on their respective Income Statements. Complete the foliowin tabie from the data provided on the income statements. Each company sold 80,800 units during the year. Feevesen T Chect My Wisk Cover-to-Cover Company Contribution Margin Income statement For the Year Ended December 31, 20Y8 ibtio Flies Company Contribution Margin Inceme statement For the Year tnded December 31, 20yB Snies 3404,000 Bibito Files Campaty is making piant for as nevt fecul year, and decides to sell twa new fypes of boskihelves, fasic and Delune, The company has compiled the folloming estimates far the new product olferings. The company is interested in determining fiow many of each type of boskshelf would have to be sold in order to break even. If we think of the basic and Deluxe products at components of ene overall enterpnse hoduct calied "Combined," the unit contribution margin for the Combined product would be 32.31. Fixed costs for the upcoming as components of one overal enterpnse product called "Combined," the unit contributien margin for the Combined product weuld be $2.31. Fixed costs for the upcoming year are estimated at $323,400. Recall that the totals of all the sales mix percents must be 100%. Determine the amounts to cornplete the following table. fertas - Dace uriwer ffrviees the definition of Denak-even point. Recall that the Combined unit contribubos margin is given by (( Easic unit contribution margin) x (Eatic percent of sales mix)] + ((Deluxe unit contr bution margin) x (0elure peccent of sales m(x)\}. Since these bercents mint add up to 100%, we have the foliowing: (Aasic peicert of sales mv) + (Deluxe percent of sales max) =100%, so that (Dekive percent of cales mx)=100%+(Bssic percent of soles mix) Tareet Prefit talet. 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 saies and net incame. Answer questians (1) - (3) that follow, assuming that all data for the coming year is the same as the current yeat, except for the amount of sales. 1. If Covento-Cover Company wants to increase its profit by $40,000 in the caming year, what must their amount of sales be? 2. if Bblie Files Company wants to increase its proft by $40,000 in the coming year, what must their amount of sales be? 3. What would explain the difference between your answers for (1) and (2) ? 3. Biblie files Company has a higher contribution margin ratio, and so more of esch sales doliar is avaliable to cover fixed costs and provide operating income. b. Cover-to-Cover Company's contribution margin ratio is lower, meaning that it's mare efficient in its operations c. The companies havn gsais that are not in the relevant range. d. The answers are not different; each company has the same required sales ambunk for the coming year to achieve the desired target profit