Question 1 The sustainability manager is concerned about the long term sustainability implications of Deluxe Boxes on the environment and suggests changing to sustainable materials for the production of a Sustainable Deluxe Box. If the company switches the current quantity of Deluxe Boxes sold, to Sustainable Deluxe Boxes, there will be some cost implications. 1)The Sustainable Deluxe Boxes could be made cheaper, and the sustainability manager believes that the company could sell the Sustainable Deluxe Boxes for $23 per box and end up making substantially higher profit than they ever did on the Deluxe Boxes. Based on knowledge of price elasticity of demand s/he/they suggest that it may in time even result in much higher sales volumes. The marketing manager believes that a lower selling price will also entice current Deluxe Box customers to accept the switch over to the Sustainable Deluxe Box. 2)The new Sustainable Deluxe Boxes will still attract 60% of the fixed costs allocated to the old Deluxe Box under the ABC method used in tab 3. 3)The number of boxes sold will not currently be affected by this new selling price, as this is a very select group of customers for LGI. 4)The Standard Box costs and revenue will remain the same as that calculated under the ABC method 5)in order to help overall profit, the variable costs per sustainable Deluxe box will be reduced to $11 per box vice the original $20 per box. Required (complete the grey spaces) 1)Determine the profit and profit percentage for the Standard and Sustainable Deluxe Boxes Standard Boxes Sustainable Deluxe Boxes Total Quantity 108.00 18.00 126.00 Selling price per unit S 18.80 | 23.00 | 41.80 Revenue S 2,030.40 | S 414.00 | S 2,444.40 Subtract: Variable Costs S 1,080.00 | 198.00 | 1,279.00 Equals: Contribution Margin S 950.40 | 316.00 | 1,166.40 Subtract: Fixed Costs s 16.84 [ 5 83.50 | 8 100.34 Equals: Operating Profit S 933.56 | S 132.50 | 5 1,066.06 Operating Profit % (based on revenue) 45.98% 32.01% 43.61% Contribution Margin % 46.81% 52.17% 47.71% Question 3 Required: Work out the percentage that the company should mark up on the costs of Sustainable Deluxe Boxes to achieve the same profit % as for the Standard boxes. (Complete the grey and yellow spaces Using Operating Profit % Using Gross Profit % Revenue % 100.00% Subtract: Required Operating Profit 45.98% Equals: Cost % 54.02% Question 4 Assume the company can still sell the same quantity of the Sustainable Deluxe Boxes as for the Deluxe Boxes Required (Complete the grey spaces and yellow space) Use the percentage calculated in Question 3 to determine at which price the company should sell the Sustainable Dehuxe Boxes to reach the same profit percentage as for the Standard Boxes. Using Contribution Margin % Total (5) Total (5) Variable Costs 5 198.00 Plus : Fixed Costs S 83.50 Equals: Total Costs 5 281.50 Determine Revenue 3 521.09 Units sold (per year) s 18.00 Sales Price per unit S 28.95 Question & Required: Prove that your calculation in Q 4 is correct. Complete the grey and yellow boxes. | Proof: Revenue Using Contribution Margin % Total {5} Subtract: Variable Costs Equals: Contribution Margin Subtract: Fixed Costs Operating Profit Operating Profit % Question & The marketing manger is concerned that the change could have a significant impact on sales as customers may see the sustainable boxes as an inferior product for which they still have to pay only a little bit less than the original price of the Deluxe Boxes. How many boxes would the company have to sell to break even on the new Sustainable Deluxe Boxes based on the new selling price? Complete the grey and yellow boxes. S Per unit Sustainable Deluxe Boxes Using Gross Profit % Selling price Less: Variable costs Unit Contribution Magin 5 28.95 Fixed Costs Breakeven Quantity 5 5 83.50 g 4.65 Break-even Value 5 134.67 In Project 3 you will analyze managerial and costing information to improve the company's EBITDA. You will use what you have learned about cost behavior and apply activity-based costing and cost-volume-profit analysis to make recommendations about LGI's operational productivity. Step 1: Use the information you calculated in Project 2 Tab 3 Profit Maximization to populate has Columns CtoH in Question 1. Step 2: Assume the company operates for 12 months of the year convert the information you populated in Columns C to H to annual information and populate Columns | to M for both the Standard and Deluxe Boxes. Step 3: Assume for this project that the only variable costs in this company are materials and labor. All other overhead costs will be assumed to be fixed. MNote: The Total Fixed Cost of 156 is supposed to be constant for the production of total boxes including Standard Box and Deluxe Box on Tabs 1, 2, and 3. On Tab 1, the total fixed costs of 156 are allocated based on a lump sum method (arbitrarily using a monthly allocation basis). On Tab 2, the total fixed costs of 156 are allocated based on the sales volume (the number of boxes sold). On Tab 3, the total fixed costs of 156 are allocated based on the cost drivers. 1 Annual information ( for 12 Months) . Variable Cost |Variable Cost| Fixed cost per Total Cost . Standard boxes sold per . Revenue (price x | ) Monthly Profit . Price per Standard | (cost per unit month (Fixed + Annual Revenue Annual VC Annual FC Annual Total month (millions) volume) . -~ (revenue - all costs) L L . L N box x volume) (millions) Variable) (millions) (millions) (millions) Costs (millions) Annual Profit 5 g 22.00 | 110.00 | 8 10.00| $ 50.00 | 10.00( $ 60.00| $ 50.00| $ 1,320.00 | 600.00 | 120.00 | 720.00 | 600.00 5.5 s 21.60 | & 118.80| % 10.00| & 55.00| % 10.00( 65.00| $ 53.80( $ 1,425.60 | & 660.00 | $ 120.00 | 780.00 | $ 645.60 6 s 21.20 | 127.20| 8 10.00| 60.00 | S 10.00( 70.00| S 57.20( S 1,526.40 | 720.00 | 120.00 | 340.00 | $ 686.40 6.5 g 20.80 | 135.20 | 8 10.00| $ 56.00 | 10.00( $ 75.00| $ 60.20| $ 1,622.40 | 780.00 | 120.00 | 900.00 | 722.40 7 s 2040 | & 142.80| 8 10.00| & 70.00| S 10.00( 80.00| S 62.80| & 1,713.60 | & 240.00 | 120.00 | 960.00 | $ 753.60 7.5 s 20.00 | & 150.00| 8 10.00| 75.00 | 10.00| 85.00| $ 65.00| 5 1,200.00 | & 900.00 | 120.00 | 1,020.00 | 780.00 3 g 19.60 | 156.80 | S 10.00| $ 80.00 | 10.00( 90.00| $ 66.80 | $ 1,881.60 | 960.00 | 120.00 | 1,080.00 | $ 801.60 8.5 s 19.20 | & 136.20| 3 10.00| & 85.00| % 10.00( 95.00| $ 68.20| & 1,95840 | 1,020.00 | $ 120.00 | 1,140.00 | 818.40 9 S 18.80 | 169.20 | S 10.00| $ 90.00 | 10.00| 100.00| $ 69.20| $ 2,030.40 | 1,080.00 | $ 120.00 | 1,200.00 | $ 830.40 9.5 S 18.40 | 174.80| 5 10.00| $ 95.00| S 10.00( S 105.00( $ 69.80| $ 2,097.60 | 1,140.00 | $ 120.00 | 1,260.00 | $ 837.60 10 s 18.00 | & 180.00| 3 10.00| & 100.00| 10.00( $ 110.00| 70.00| & 2,160.00 | $ 1,200.00 | $ 120.00 | 1,320.00 | 840.00 10.5 g 17.60 | 184.80 | 8 10.00| $ 105.00| 10.00| 115.00| $ 69.80 | $ 2,217.60 | 1,260.00 | 120.00 | 1,380.00 | $ 837.00 11 S 17.20 | 189.20| $ 10.00| $ 110.00| $ 10.00( $ 120.00| $ 69.20| 2,27040 | 1,320.00 | $ 120.00 | 1,440.00 | $ 830.40 11.5 s 16.80 | & 193.20| 3 10.00| & 115.00| 10.00( $ 125.00( 68.20| & 2,31840 | 1,380.00 | $ 120.00 | 1,500.00 | 818.40 12 g 16.40 | 196.80 | S 10.00| $ 120.00| 10.00 & 130.00| 66.80 | $ 2,361.60 | & 1,440.00 | 120.00 | 1,560.00 | $ 801.60 12.5 s 16.00 | & 200.00| % 10.00| & 125.00| 10.00( $ 135.00( 65.00 & 2,400.00 | 1,500.00 | $ 120.00 | 1,620.00 | 780.00 13 S 15.60 | S 202.80| 3 10.00| 130.00| 10.00( S 140.00| 62.80| 5 2,433.60 | $ 1,560.00 | $ 120.00 | $ 1,680.00 | 753.60 13.5 g 15.20 | 205.20 | 8 10.00| $ 135.00| 10.00 & 145.00| 60.20| $ 2,462.40 | 1,620.00 | 120.00 | 1,740.00 | 722.40 14 s 14.80 | & 207.20| % 10.00| & 140.00| 10.00| $ 150.00| 57.20| $ 248640 | 1,680.00 | $ 120.00 | 1,800.00 | 686.40 Annual information { for 12 Months) . . Variable Cost | Fixed cost per Total Cost . Deluxe boxes sold per month . Revenue (price x Variable Cost ~ ~ Monthly Profit . - Price (cost per unit month (Fixed + Annual Revenue Annual VC Annual FC Annual Total Annual Profit (millions) volume) per Deluxe box L -~ (revenue - all costs) L L L L L x volume) {millions) Variable) (millions) (millions) (millions) Costs (millions) (millions) 1 5 30.00 | 30.00| 20.00| $ 20.00 | S 3.00| S 23.00| $ 7.00| S 360.00 | 240.00( 36.00 | 276.00 | S 84.00 1.2 $ 29.50 | 35.40( $ 20.00| 24.00 | 3.00000| $ 27.0000| $ 8.40| $ 42480 | $ 288.00| $ 36.00 | 324.00 | 100.80 1.35 S 29.00 | 39.15| % 20.00| 27.00| $ 3.00000| S 30.0000| S 9.15| 469.80 | 324.00( 8 36.00 | S 360.00 | $ 109.80 1.5 5 23.50 | S 42.75( 5 20.00| 30.00( S 3.00000| S 33.0000| S 9.75| 5 513.00| S 360.00( & 36.00 | S 396.00 | 117.00 1.55 g 28.00 | $ 43.40| 20.00| 31.00 | 3.00000| S 34.0000| $ 9.40| $ 520.80 | & 372.00( 8 36.00 | 408.00 | 112.80 1.6 S 27.50 | 4.00( 8 20.00| 32.00( S 3.00000| S 35.0000| % 9.00| 528.00| $ 384.00( $ 36.00 | S 420.00 | $ 108.00 1.65 S 27.00 | 44.55( S 20.00| 33.00( S 3.00000| S 36.0000| S 3.55|5 534.60 | S 396.00( S 36.00 | 5 432.00 | S 102.60 1.7 g 26.50 | $ 45.05| 20.00| 34.00 | 3.00000| S 37.0000| S 8.05| % 540.60 | 408.00| $ 36.00 | 44400 | 96.60 175 S 26.00 | 4550 & 20.00| 35.00( S 3.00000| S 38.0000| S 7.50| 8 546.00 | 420.00| $ 36.00 | S 456.00 | $ 90.00 1.8 S 25.50 | 4590 & 20.00| 36.00 | $ 3.00000| S 39.0000| S 6.90| 550.80 | & 432.00| 36.00 | S 468.00 [ $ 82.80 1.85 g 25.00 | $ 46.25| 20.00| 37.00 | 3.00000| S 40.0000| $ 6.25| S 555.00 | aa4.00| 36.00 | 480.00 | 75.00 19 S 24.50 | 46.55( & 20.00| 38.00( $ 3.00000| S 41.0000| S 5.55| % 558.60 | & 456.00| 36.00 | S 492.00 [ $ 66.60 1.95 S 24.00 | 46.80( & 20.00| 39.00( $ 3.00000| S 42.0000| S 4.80| S 561.60 | & 463.00| 36.00 | S 504.00 [ $ 57.60 2 g 23.50 | 47.00( $ 20.00| 20.00 | $ 3.00000| S 43.0000| S 4.00| % 564.00 | 430.00| $ 36.00 | 516.00 | 48.00 2.05 S 23.00 | $ 47.15( $ 20.00| $ 4100 $ 3.00000| $ 44.0000| $ 3.15|8$ 565.80 | 492.00| 36.00 | S 528.00 [ S 37.80 2.1 S 2250 | 47.25( & 20.00| 42.00] 3.00000| S 45.0000| S 2258 567.00 | 504.00| 36.00 | S 540.00 | $ 27.00 2.15 g 22,00 | $ 47.30| 20.00| $ 43.00 | $ 3.00000| S 46.0000| S 1.30| 567.60 | & 516.00| $ 36.00 | 552.00 | 15.60 2.2 S 2150 | 47.30( $ 20.00| 44.00 | $ 3.00000| S 47.0000| S 030 S 567.60 | $ 528.00| $ 36.00 | S 564.00 [ $ 3.60 2.25 S 21.00 | 47.25( & 20.00| 45.00 ] $ 3.00000| S 48.0000| S 0.75| 8 567.00| 540.00| 36.00 | S 576.00 [ $ 9.00