Question 1 LGI's production managers recently attended a course at UMGC where they learned about ABC costing. They propose allocating the total fixed costs between Standard and Deluxe boxes based on this method . They collected information about the cost drivers and the break up of the total costs in Table 1 below. How much overhead would be allocated to Standard and Deluxe Boxes ( in total and per unit) using this method? Show all supporting calculations. Complete the grey spaces Table 1 Manufacturing $ Amount Cost driver Standard Box Deluxe Box Totals of Drivers Cost of Standard Total Cost Check (must overhead Cost of Deluxe Boxes Boxes agree to Column B7:B14) Depreciation $47.00 square feet 1,000 80,00 $7,000 $ 3.78 $ 13.22 $47.00 Maintenance $ 50.00 Direct Labour Hours 1,000 9,000 10,000 $ 5.00 45.00 $50.00 Purchase order Number of purchases $9 500 processing orders 4,500 5,000 0.90 8.10 $9.00 Inspection 534 Number of employees 1,000 6000 7,000 $ 4.86 S 29.14 $34.00 Indirect Materials 5.00 Labour Hours 1,000.00 9,000.00 10,00 $ 0.50 4.50 $ 5.00 supervision 7.00 fot inspections 200 800 1,000 1.40 5.60 $7.00 Supplies $4.00 Units manufactured 1,000.00 9,000.00 10,000 S 0.40 S 3.60 $4.00 Total Allocated costs $156.00 O s 16.84 S 139.16 $156.00 Number of boxes per $156 108 18 126 .16 S year 7.73 7.89 Allocated Cost per Box Question 1 Standard Boxes Deluxe Boxes Total Sales 2,030.40 513.00 $ 2,543.40 Less: Variable Costs 1,080.00 180.00 1,260.00 Contribution 950.40 333.00 1 ,283.40 Less: Fixed Costs 16.84 139.16 156.00 Profit 933.56 193.84 1,127.40 Profit % 45.98% 37.79% $ 0.84Question 1 The sustainability manager is concerned about the long term sustainability implications of Deluxe boxes on the environment and suggest changing to sustainable materials for the production of a Sustainable Deluxe Box. lfthe company switches to their current quantity of Deluxe Boxes sold to Sustainable Deluxe Boxes there will be some cost implications. The Sustainable Deluxe Boxes could be made cheaper, and the sustianability manager believes that the company could bring down the selling price to $15 per box which would entice current Deluxe Box customers to accept the switch over. The new Sustainable Deluxe Boxes will attract 60% of total xed costs calculated for the Deluxe Boxes under the ABC method. The number of boxes sold will not be affected by this new selling price, as th company will in future have to do marketing to sell more boxes at the lower price. Calculate the new Gross profit and profit percentage. Complete the grey spaces Standard Boxes Sustainable Deluxe Total Quantity 108.00 18.00 126.00 Sellin price per unit S 18.80 15 Sales 5 2,030.40 270.00 5 2,300.40 VC S 1,080.00 S 180.00. 1,250.00 Contribution 3 950.40 90.00 5 1340.40 Fixed Costs s 16.34, 5 3.3.50. 5' 100.34 Profit 5 933. 56 6.50 s 940.06 6 P % 45.98% 2.41% 48% Question 2 The manager is concerned about the massive reduction in profit from the Sustainable Deluxe Boxes but realizes that because of the change in materials, they will no longer be able to charge the price of $18 per box. The manager wants to achieve at least the same prot percentage for the deluxe boxes as they have on standard boxes. How much additional profit are they requiring? Complete the gre spaces. Required profit 45.98% See Tab 3 Less: Existing profit 2.41% See Q 1 above Equals: Difference in additional profit required 43.57% Question 3 spaces % Sales 100.00% Less Required GP% 45.98% Equals: Mark up percentage on cost 54.02% Question 4 Use the percentage calculated in Question 3 to determine how much the company should charge per product to reach the same profit percentage as for the standard boxes . Assume the company can still sell the same quantity of the Sustainable Deluxe Boxes as for the Deluxe Boxes. Complete the grey spaces Totals Variable Costs 180.00 Fixed Cost 83.50 Total Costs 263.50 Sales 487.77 Units sold 18 Sales Price per unit $ 27.10 Question 5 Prove that your calculation in Q 4 is correct. Complete the grey boxes. Proof: Total Per Unit Sales 487.77 $ 27.10 Less VC 180.00 12 Contribution 307.77 15.10 Fixed Costs 83.50 Net Profit 224.27 Profit % 45.98%Question 5 The marketing manger is concerned that the change could havea significant impact on sales as ciustomers may see the sustaia ble boxes as an inferiror product for which they still have to pay only a little bit less than the orginal price of the Deluxe Boxes. How many boxes would the company have to sell to break even on the new Sustainabale Deluxe Boxes based on the new selling price? Complete the grey boxes. 3 Totals Selling price {5 27.10 Less: Variable costs {5 10.00 Contribution {5 17.10 Fixed Costs $ 83.50 Breakeven Quantity 4.88 BreakEven Value 3 132.33