Question
You should prepare the following spreadsheets and answer the following questions: 1a. Calculate the weighted average contribution margin percentage for the annual budget. 1b.
You should prepare the following spreadsheets and answer the following questions:
1a. Calculate the weighted average contribution margin percentage for the annual budget. 1b. Interpret your result from 1a. What are the implications of the result in 1a (e.g., high or low weighted average contribution margin percentage for the management of Bridgestone? 2a. Is Bridgestone able to breakeven? Calculate the expected profit/loss (e.g., over- or underrecovery). Which actions could Bridgestone take to improve the expected profit/loss? 2b. Bridgestone is concerned that they are running at risk to not breakeven. In your cost analysis class during your studies at Whitman/SU, you learned the concept of the margin of safety. Calculate the margin both as a dollar amount as a percentage and explain Dr. Russell what these numbers mean. 3a. Fixed costs can be discretionary or committed. Discuss which of the fixed costs in this case are discretionary or committed using the information from the text. 3b. Independent from your answer in 3a, assume that the following fixed costs are discretionary and can be reduced by 15%: Salaries & Benefits, Consulting Fees, Rent, and Transportation. All other fixed costs are assumed to be committed. What would be the impact on the breakeven point revenues? 4. Although Medicaid rates have not changed in the past to a larger extend, Dr. Russell is afraid that particularly the rate for Group Counseling might change in the future. He wants to understand how changes of the rate of the Group Counseling in the range of minus 20 to plus 20 percent compared to the budgeted rate of 40 USD affects the company's total operating income. All other values remain unchanged. You should illustrate your answer with a graph. For instance, you could show a line for operating income, which is a function of the selling price. 5a. Assume that fixed costs are assigned to each service based on the units of service a service is expected to have next year.
Calculate the profitability (dollar amount and percentage) per service. You may lump all individual line items of fixed overheads together. 5b. Based on your answer in 5a, for which services should Bridgestone start marketing campaigns to increase the service volume? Explain.
5c. Instead of allocating the fixed costs per units of service provided, Dr. Russell asks you to provide him the results for 5a and 5b assigning the fixed costs now proportionally based on the direct labor hours per service. 5d.
Explain to Dr. Russell why activity-based costing might be a better approach to allocate overheads of Bridgestone instead of a simple costing system as applied in 5a-5.
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