Question Content Area

Integrative Exercise Cost Behavior and Cost-Volume-Profit Analysis for Many Glacier Hotel

Using the High-Low Method to Estimate Variable and Fixed Costs

Located on Swiftcurrent Lake in Glacier National Park, Many Glacier Hotel was built in 1915 by the Great Northern Railway. To supplement its lodging revenue, the hotel decided to begin manufacturing and selling small wooden canoes decorated with symbols hand painted by Native Americans living near the park. The canoes were a great success, so a couple of years later the hotel began manufacturing and selling paddles. Many hotel guests purchase a canoe and paddles for use in self-guided tours of Swiftcurrent Lake. Because production of the two products began in different years, the canoes and paddles are produced in separate production facilities and employ different laborers. Each canoe sells for $540, and each paddle sells for $60. About 15 years ago, a fire destroyed the hotel's accounting records. A new system put into place before the next season provides the following aggregated data for the hotel's canoe and paddle manufacturing and marketing activities (Years 1 through 12 give the data for the years in which the new accounting system was active):

Year	Number of Canoes Manufactured	Total Canoe Manufacturing Costs	Year	Number of Paddles Manufactured	Total Paddle Manufacturing Costs
1	250	$103,000	1	900	$38,500
2	240	115,000	2	1,200	49,000
3	275	128,000	3	1,000	44,000
4	310	114,000	4	1,100	45,500
5	350	141,500	5	1,400	52,000
6	380	132,000	6	1,700	66,500
7	415	146,500	7	1,720	66,300
8	430	132,000	8	1,850	71,750
9	450	146,100	9	1,900	72,000
10	470	155,000	10	2,020	78,900
11	480	136,000	11	2,050	78,200
12	500	167,000	12	2,200	84,000

Year	Number of Canoes Sold	Total Canoe Marketing Costs	Year	Number of Paddles Sold	Total Paddle Marketing Costs
1	250	$45,000	1	900	$7,500
2	240	47,000	2	1,200	9,000
3	275	43,000	3	1,000	8,000
4	310	51,000	4	1,100	8,500
5	350	62,000	5	1,400	10,000
6	380	53,000	6	1,700	11,500
7	415	68,500	7	1,720	11,600
8	430	63,000	8	1,850	12,250
9	450	65,000	9	1,900	12,500
10	470	67,000	10	2,020	13,100
11	480	52,000	11	2,050	13,250
12	500	73,000	12	2,200	14,000

Required:

1. High-Low Cost Estimation Method

a. Use the high-low method to estimate the per-unit variable costs and total fixed costs for the canoe product line.

Line Item Description	Amount
Variable cost per unit	$fill in the blank 1
Total fixed cost	$fill in the blank 2

b. Use the high-low method to estimate the per-unit variable costs and total fixed costs for the paddle product line.

Line Item Description	Amount
Variable cost per unit	$fill in the blank 3
Total fixed cost	$fill in the blank 4

2. Cost-Volume-Profit Analysis, Single-Product Setting Use CVP analysis to calculate the break-even point in units for

a. The canoe product line only (i.e., single-product setting)

Line Item Description	Answer
BE units	fill in the blank 5 canoes

b. The paddle product line only (i.e., single-product setting)

Line Item Description	Answer
BE units	fill in the blank 6 paddles

3. Cost-Volume-Profit Analysis, Multiple-Product Setting

The hotel's accounting system data show an average sales mix of approximately 300 canoes and 1,200 paddles each season. Significantly more paddles are sold relative to canoes because some inexperienced canoe guests accidentally break one or more paddles, while other guests purchase additional paddles as presents for friends and relatives. In addition, for this multiple-product CVP analysis, assume there is an additional $28,000 of common fixed costs for a customer service hotline used for both canoe and paddle customers. Use CVP analysis to calculate the break-even point in units for both the canoe and paddle product lines combined (i.e., the multiple-product setting).

Line Item Description	Answer
Canoe BE units	fill in the blank 7 canoes
Paddle BE units	fill in the blank 8 paddles

4. Cost Classification

a. Classify the manufacturing costs, marketing costs, and customer service hotline costs either as production costs or period costs.

All manufacturing costs are

productperioddirectproduct

costs. All marketing costs and customer hotline costs are

productperioddirectperiod

costs

b. For the period costs, further classify them into either selling expenses or general and administrative expenses.

Marketing costs are selling oriented; therefore, the marketing period costs would be further classified as

selling expensesgeneral and administrative expensedirect expensesselling expenses

. Customer hotline costs relate to the customer service section of the value chain and would be further classified as

selling expensesgeneral and administrative expensedirect expensesgeneral and administrative expense

.

5. Sensitivity Cost-Volume-Profit Analysis and Production Versus Period Costs, Multiple- Product Setting

If both the variable and fixed production costs (refer to your answer to Requirement 1) associated with the canoe product line increased by 5% (beyond the estimate from the high-low analysis), how many canoes and paddles would need to be sold in order to earn a target income of $96,000? Assume the same sales mix and additional fixed costs as in Requirement 3.

Line Item Description	Answer
Canoe target income units	fill in the blank 13 canoes
Paddle target income units	fill in the blank 14 paddles

6. Margin of Safety (MOS)

Calculate the hotel's margin of safety (both in units and in sales dollars) for Many Glacier Hotel, assuming the same facts as in Requirement 3, and assuming that it sells 650 canoes and 2,400 paddles next year. The total MOS units equal fill in the blank 1 of 1.

The MOS in sales dollars equals fill in the blank 1 of 1$. NOTE Please help me with question 5, thank you