PLEASE NOTE I ONLY NEED THE ANSWER TO QUESTION 5 AS QUESTION 5 IS DEPENDENT ON ANSWERS FROM QUESTION 1 AND 3 ANSWERS TO THOSE HAVE ALSO BEEN PROVIDED UNDER EACH QUESTION Kate and Claire, recent college graduates, are unable to find suitable jobs in their field of accounting However, each has been involved with a small business of their own for the last several years, and have been doing very well Kate is a talented seamstress, and has designed a line of fashionable blazers that are selling for $500 each Kate remains shocked at how fast the orders are coming in, and wonders if this could be something big Claire also has a small but growing business She manufactures synthetic leather belts that are selling for $50 each, and is similarly experiencing strong consumer interest A few large retailers have started to place orders with both girls, and both are struggling to keep up with demand Kate and Claire are wondering if they should combine their lines and start building the business together, since there is a high amount of overlap among their customers, and they could likely achieve some synergies by combining their marketing and customer service efforts The belts go very well with the blazers With a solid knowledge of their accounting basics, both have kept very thorough cost and marketing data So they decided to pull it all together and analyze it Kates blazers manufacturing data of Blazers Total Manufacturing Costs 2019 400 $140,000 2018 350 130,000 2017 310 122,000 2016 240 108,000 2015 275 115,000 2014 250 106,000 Kates blazers marketing data of Blazers Total Marketing Costs 2019 400 $60,000 2018 350 55,000 2017 310 51,000 2016 240 44,000 2015 275 47,500 2014 250 45,000 Claires belts manufacturing data of Belts Total Manufacturing Costs 2019 1,700 $66,500 2018 1,400 56,000 2017 1,100 45,500 2016 1,000 42,000 2015 1,200 49,000 2014 900 38,500 Claires belts marketing data of Belts Total Marketing Costs 2019 1,700 $11,500 2018 1,400 10,000 2017 1,100 8,500 2016 1,000 8,000 2015 1,200 9,000 2014 900 7,500 DELIVERABLE Prepare a comprehensive report with the answers to each of the following questions Provide all calculations in a well organized manner, with the final answer for each part clearly stated in a complete sentence QUESTIONS 1 High low cost estimation method Use the high low method to estimate the per unit variable costs and total fixed costs for the blazers Use the high low method to estimate the per unit variable costs and total fixed costs for the belts ANSWER High low cost estimation method Claire and Kate can calculate variable cost per unit by the following formula highest activity cost lowest activity cost highest activity units lowest activity units Additionally, the fixed cost formula is Highest activity cost (variable costs per unit x highest activity units Blazers Variable cost unit (140,000 60,000) (106,000 45,000) 400 250 326 67 unit Fixed cost 106,000 45,000 (326 67 x 400) $ 69,332 Belts Variable cost unit 66,500 11,500 38,500 7,500 1,700 900 $ 40 unit Fixed cost 66,500 (40 x 1,700) $ 10,000 3 CVP, multiple product setting Merging the data together, it appears the sales mix is approximately 300 blazers and 1,200 belts each year For this CVP analysis, assume an additional $30,000 of combined fixed costs, this will be largely customer service costs Calculate the break even point for both product lines combined ANSWER The combined contribution unit is then calculated by simply adding the two selling prices unit, which in this case equals to 173 33 10 183 33 Break even point for combined products (units) 69,332 10,000 30,000 183 33 596 37 5 Sensitivity CVP analysis and production versus period expenses Multiple Product Setting If both variable and fixed production expenses (refer to Question 1) associated with the blazer increased by 5 (beyond the estimate from the high low analysis), how many blazers and belts would need to be sold in order to earn a target income of $96,000 Assume the same sales mix and additional fixed costs in Question 3

The Answer is in the image, click to view ...

Answered step by step

Verified Expert Solution

Link Copied!

Question

1 Approved Answer

Posted on Sep 06, 2024

PLEASE NOTE!!! I ONLY NEED THE ANSWER TO QUESTION 5. AS QUESTION 5 IS DEPENDENT ON ANSWERS FROM QUESTION #1 AND #3 - ANSWERS TO

PLEASE NOTE!!! I ONLY NEED THE ANSWER TO QUESTION 5. AS QUESTION 5 IS DEPENDENT ON ANSWERS FROM QUESTION #1 AND #3 - ANSWERS TO THOSE HAVE ALSO BEEN PROVIDED UNDER EACH QUESTION.

Kate and Claire, recent college graduates, are unable to find suitable jobs in their field of accounting. However, each has been involved with a small business of their own for the last several years, and have been doing very well. Kate is a talented seamstress, and has designed a line of fashionable blazers that are selling for $500/each. Kate remains shocked at how fast the orders are coming in, and wonders if this could be something big. Claire also has a small but growing business. She manufactures synthetic leather belts that are selling for $50/each, and is similarly experiencing strong consumer interest. A few large retailers have started to place orders with both girls, and both are struggling to keep up with demand. Kate and Claire are wondering if they should combine their lines and start building the business together, since there is a high amount of overlap among their customers, and they could likely achieve some synergies by combining their marketing and customer service efforts. The belts go very well with the blazers. With a solid knowledge of their accounting basics, both have kept very thorough cost and marketing data. So they decided to pull it all together and analyze it.

Kates blazers manufacturing data

	# of Blazers	Total Manufacturing Costs
2019	400	$140,000
2018	350	130,000
2017	310	122,000
2016	240	108,000
2015	275	115,000
2014	250	106,000

Kates blazers marketing data

	# of Blazers	Total Marketing Costs
2019	400	$60,000
2018	350	55,000
2017	310	51,000
2016	240	44,000
2015	275	47,500
2014	250	45,000

Claires belts manufacturing data

	# of Belts	Total Manufacturing Costs
2019	1,700	$66,500
2018	1,400	56,000
2017	1,100	45,500
2016	1,000	42,000
2015	1,200	49,000
2014	900	38,500

Claires belts marketing data

	# of Belts	Total Marketing Costs
2019	1,700	$11,500
2018	1,400	10,000
2017	1,100	8,500
2016	1,000	8,000
2015	1,200	9,000
2014	900	7,500

DELIVERABLE:

Prepare a comprehensive report with the answers to each of the following questions. Provide all calculations in a well-organized manner, with the final answer for each part clearly stated in a complete sentence.

QUESTIONS:

1. High-low cost estimation method

Use the high-low method to estimate the per-unit variable costs and total fixed costs for the blazers.
Use the high-low method to estimate the per-unit variable costs and total fixed costs for the belts.

ANSWER:

High low cost-estimation method

Claire and Kate can calculate variable cost per unit by the following formula: highest activity cost lowest activity cost / highest activity units lowest activity units.

Additionally, the fixed cost formula is: Highest activity cost (variable costs per unit x highest activity units.

Blazers

Variable cost/unit= (140,000 + 60,000) (106,000+45,000) / 400 250 =326.67/ unit
Fixed cost= 106,000+45,000 (326.67 x 400) = $69,332

Belts

Variable cost/unit= 66,500+11,500 38,500+7,500 / 1,700 900 = $40/unit
Fixed cost= 66,500 + (40 x 1,700) = $10,000

3. CVP, multiple-product setting

Merging the data together, it appears the sales mix is approximately 300 blazers and 1,200 belts each year.

For this CVP analysis, assume an additional $30,000 of combined fixed costs, this will be largely customer service costs.

Calculate the break-even point for both product lines combined.

ANSWER:

The combined contribution/unit is then calculated by simply adding the two selling prices/unit, which in this case equals to: 173.33+10 = 183.33
Break-even point for combined products (units) = 69,332+10,000+30,000/183.33= 596.37

5. Sensitivity CVP analysis and production versus period expenses Multiple-Product Setting

If both variable and fixed production expenses (refer to Question #1) associated with the blazer increased by 5% (beyond the estimate from the high-low analysis), how many blazers and belts would need to be sold in order to earn a target income of $96,000? Assume the same sales mix and additional fixed costs in Question #3.