Q.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.

1) Learners must identify a typical high-activity observation and a typical low-activity observation,

2) calculate the VC per unit, and

3) calculate the total monthly FCs.) Write the cost function (learners must write the equation y=mx+b, where m= VC/unit and b=FC).

Please do not copy or redistribute. Additional materials may be available at store.darden.virginia.edu. Contact permissions@dardenbusinesspublishing.com for permissions. A IVERSITY DARDEN UVA-C2402 f: ev. eh. lml' RGINIA Business Publishing R F @2020 JW Sports Supplies (A) James Jones and \\William West had worked out together almost daily for several years. Both were professionals pursuing demanding careers, and both saw exercise as an escape from the daily stresses of the workplace. While they continued to update their workout wardrobes to take advantage of the latest in apparel technology, they lamented the lack of the perfect gym bag each time they met at the gym. One day, it was that lack of good storage space for their sneakers; the next, it was the lack of a pocket to conveniently store their phones, keys, and other small necessities; and finally, it was the problem of the seams splitting far beyond what one would consider normal wear and tear. Jones and West were sure they couldn't be the only ones who found current gym bags inadequate in meeting their needs. Eventually, they decided to pursue a venture to make what they considered the ideal gym bag, one that would incorporate the features they both desired and that would be of a sufficient quality to withstand a regular workout schedule for several years. They each made a modest investment to start their new companyJW' Sports Suppliesand began operating on the side while they continued their respective professional careers. That had been more than five years ago. The company had grown substantially, had achieved annual sales of over $1.5 million, and had begun to generate a healthy prot (Exhibit 1 provides an income statement for the most recent year of operation). As Jones and West reected on their success to date, they contemplated what might be possible if they could devote themselves full time to J\\X' Sports Supplies. They decided to dive deeper into the numbers. They wanted to better understand the impact that alternative decisions they could make about managing costs, changing prices, and different sales volumes would have on the company, so that they could better determine whether pursuing their venture full time was even a possibility. They both agreed that if they could see annual profit climb to around $300,000, they would consider making this a fulltime endeavor. The two owners decided to begin their analysis by gaining a better understanding of the costs being incurred to produce and sell the gym bags. They gathered some data to help them in their analysis. First, they compiled data on actual total costs and number of gym bags produced and sold per month for the past 24 months (see Exhibit 2). They noted that they typically only produced the gym bags once they had an order; they were averse to tying up cash in inventory, and pursuing this strategy meant that units produced and sold were the same each month. Second, they compiled detailed data on costs by category for 2 of the 24 months (see Exhibit 3 for a description of each cost category, and Exhibit 4 for costs by category). They could have gathered this information for all 24 months, but they decided to start with just 2 months to keep their analysis more manageable. Upon gathering the data, they were ready to roll up their sleeves and get to work. They had many questions to answer. This fictional case was prepared by Luann J. Lynch, Almand R. Coleman Professor of Business Administration. It was Written as a basis for class discussion rather than to ilustrate effective or ineffective handling of an administrative situation. Copyright 2017 by the University of Virginia Darden School Foundation, Charlottesville, VA. All rights reserved. To ordermpier, .rmd rm email f0 salesQDdardenbusinesspublishingcom. N0 pm? oft/Il'rpithlimtz'm may be reproduced, stared in a whiny] yttmi, wed in a meadrbeet, orifrmn'med in dry/farm or @/ my \"mantis/aiming ier/Jamie], p/Jatompjri/gg. molding ar ot/meirei wit/Mill r/Je pemnian Hf {be Dar/1m Si/Mo/ Foundation. Our goal is to publish materials of the highest quality, so please submit any errata to cditorialleardcnbusincss tibiishingcom. Page 2 UVA-C-2402 Exhibit 1 JW Sports Supplies (A) Income Statement for Most Recent Year of Operation Revenues $1,837,200 Cost of goods sold (COGS) 1,274,000 Gross margin 563,200 Selling, general, and administrative expenses (SG&A) 345,000 Profit before tax $ 218,200 Source: All exhibits created by author. Exhibit 2 JW Sports Supplies (A) Production /Sales Levels and Costs by Month Actual units Actual cost Jan 1,000 $ 100,000 Feb 1,100 $ 106,000 permissions@dardenbusinesspublishing.com for permissions Mar 1,175 $ 105,000 Please do not copy or redistribute. Additional materials may be available at store.darden. virginia.edu. Contact Apr 1,250 $ 120,000 May 1,410 $ 128,000 Jun 1,520 $ 132,000 Jul 1,600 $ 135,000 Aug 1,710 $ 140,000 Sep 1,800 $ 148,000 Oct 1,970 $ 150,000 Nov 970 $ 150,000 Dec 1,970 $ 120,000 Jan 1,510 $ 140,000 Feb 1,650 $ 130,000 Mar 1,450 $ 115,000 Apr 1,200 $ 112,000 May 1,210 $ 130,000 Jun 1,900 $ 154,000 Jul 1,890 $ 162,000 Aug 1,200 $ 112,000 Sep 1,210 $ 130,000 Oct 1,600 $ 143,000 Nov 1,700 $ 148,000 Dec 1,850 $ 143,000Please do not copy or redistribute. Additional materials may be available at store.darden.virginia.edu. Contact permissions@dardenbusinesspublishing.com for permissions. Page 3 UVAC2402 Exhibit 3 JW Sports Supplies (A) Description of Costs Cost Description Direct material Cost of material used to make the gym bags that could easily be traced to each bag. This included the cost of the material, zippers, shoulder strap, and handles. Direct labor Cost of paying workers who make the gym bags. Rent Amount paid to lease the facility where the gym bags were made. Depreciation Cost of the equipment used in making the gym bags. Electricity Cost obtained from the monthly utility bill for power to prov1de lighting Other manufacturing and 0 crate machinery. Cost of materials not directly traceable to each bag (e.g., thread and glue); labor not working directly on gym bag assembly (e.g., maintenance and janitorial costs, setup of equipment, material handling, supplies). Selling Fixed salary paid to sales representative. Sales commission Amount paid to sales representative for each gym bag sold. Administrative General and administrative costs (e.g., purchasing, accounting, payroll). Exhibit 4 JW Sports Supplies (A) Monthly Costs at Different Volume Levels Units produced and sold Cost category 1,200 1,900 Direct material 313 36,000 313 57,000 Direct labor 18,000 28,500 Rent 5,000 5,000 Depreciation 4,000 4,000 Electricity 4,400 5,800 Other manufacturing 19,600 21,700 Selling 8,000 8,000 Sales commission 12,000 19,000 Administrative 5,000 5,000