PLEASE USE EXCEL FOR A BETTER UNDERSTANDING.

1. Case Exhibit 2 presents monthly data of units produced and sold, and actual costs incurred, for 24 months.

make a scatterplot of costs and units. in excel

From your scatterplot, estimate the variable cost (VC) per unit and the total monthly fixed costs (FCs).

Are there any outliers in the data? If so, which observations?

What is the relevant range of activity represented by the data?

2. Using the data presented in case Exhibit 2, use the high-low method to estimate the VC per unit and the total monthly FCs. (You need to identify a typical high-activity observation and a typical low-activity observation, calculate the VC per unit, and calculate the total monthly FCs.) Write the cost function (please write the equation y=a + bx, where a=FC and b=VC/unit).

3. Case Exhibit 4 presents individual costs at a two levels of production/sales: 1,200 units and 1,900 units. For each cost, indicate whether it is a VC, an FC, or a mixed cost (MC) that contains both a variable and fixed component.

4. From your analysis in question 3, choose one VC, one FC, and one MC. For each, calculate the per-unit cost at both the 1,200- and 1,900-unit levels, indicate whether the per-unit cost stays the same, increases, or decreases as volume increases, and provide an explanation.

5. For each cost in case Exhibit 3, indicate whether the cost is a manufacturing or non manufacturing cost.

6. Assume the company expects to produce and sell 1,500 units during the following month at a price of $100 per unit. Make a traditional income statement that shows predicted revenues and costs. Prepare a contribution margin statement that shows predicted revenues, costs, and profit before tax.

7. Assume the company prices its product at $100. What is the CM per unit?

8. Assume the company prices its product at $100. How many units does it need to sell per month to break even?

9. Assume the company sells 800 units. What is the price it must set on its product to break even?

10. The owners have set a target profit of $25,000 per month ($300,000 per year) in order for them to decide to devote themselves full time to JW Sports Supplies. Realizing from their projected income statements that their current predictions fall short of the $25,000, they want to evaluate the impact of alternative actions. Specifically, they want to evaluate each of the following factors, separately (in doing so, assume all other factors stay the same as projected in the income statement):

What price must the company set to achieve a profit of $25,000 per month?

What must the VC per unit be to achieve a profit of $25,000 per month?

How many units must it sell to achieve a profit of $25,000 per month?

What must total monthly FCs be to achieve a profit of $25,000 per month?

11. The company is considering making a deluxe model. Its price would be $156, and its VC per unit would be $100, compared to a price of $100 and a VC of $60 for the basic model. It anticipates a sales mix of 60% basic model and 40% deluxe model. How many units of the basic model and how many units of the deluxe model must the company sell to break even?

Exhibit 2 JW Sports Supplies (A) Production/Sales Levels and Costs by Month JW Sports Supplies (A) Description of Costs Exhibit 4 JW Sports Supplies (A) Monthly Costs at Different Volume Levels Exhibit 2 JW Sports Supplies (A) Production/Sales Levels and Costs by Month JW Sports Supplies (A) Description of Costs Exhibit 4 JW Sports Supplies (A) Monthly Costs at Different Volume Levels