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2/15: Milestone submission. On Sheet 1: Table 2 should use Fixed cost per month “$3 million (instead of $10) per month” because Project 2->Tab 2->Question #3 states that “The variable cost per unit is $10 and the fixed costs are $3 million per month.” Please correct the related numbers on Question 2 accordingly. Question #2: “Marginal Contribution = Revenue – Variable Costs” is the correct formula you should use. Question #2: You should use the formula “Profit % = Profit / Revenue” when calculating Profit % for Total (in cell D70). Do not use ‘sum’ function at here. On Sheet 2: Sheet 3: For Question #1, Total Allocated costs (row 14) for Cost of Standard Boxes (Column H) should be the sum of the computed results in column H (=16.84). Your calculations for the Allocated cost per box are incorrect. For example, for Standard boxes, Allocated Cost per box = Total Allocated costs (16.84) / Number of boxes per year (108) = 0.16. Please correct your related calculations for both standard boxes and Deluxe boxes. On Sheet 4: |
>Sheet Maximization has been populated in Cells A to H of Q 1. Assuming the company operates months of the year convert the information from Project 2 to annual information for both Standard and Deluxe Boxes.
22
( obtain from Project 2)
12 Boxes sold per month in millions
/unit
VC Costs (FC+VC)
(millions)
0.00
$ 10.00 0.00
$ 50.00 20.00
$ 600.00 0
.80
$ 10.00 $ 10.00 $ 120.00 0
$ 10.00 $ 10.00 $ 720.00 $ 120.00 5.20
$ 10.00 $ 65.00 $ 10.00 $ 780.00 $ 120.00 00.00
2.80
$ 10.00 $ 70.00 $ 10.00 $ 840.00 $ 120.00 0.00
$ 10.00 $ 75.00 $ 10.00 $ 65.00 .00
$ 900.00 $ 120.00 $ 780.00 $ 10.00 $ 80.00 $ 10.00 $ 960.00 $ 120.00 $ 10.00 $ 85.00 $ 10.00 $ 1,020.00 $ 120.00 .40
$ 10.00 $ 90.00 $ 10.00 $ 1,080.00 $ 120.00 .00
$ 10.00 $ 95.00 $ 10.00 $ 1,140.00 $ 120.00 $ 10.00 $ 100.00 $ 10.00 $ 70.00 $ 1,200.00 $ 120.00 $ 1,320.00 $ 840.00 $ 10.00 $ 105.00 $ 10.00 $ 69.80 $ 1,260.00 $ 120.00 $ 837.60 $ 10.00 $ 110.00 $ 10.00 $ 120.00 $ 69.20 $ 1,320.00 $ 120.00 $ 830.40 $ 10.00 $ 115.00 $ 10.00 $ 68.20 $ 1,380.00 $ 120.00 .00
$ 818.40 $ 10.00 $ 120.00 $ 10.00 $ 66.80 $ 1,440.00 $ 120.00 $ 801.60 $ 10.00 $ 125.00 $ 10.00 $ 65.00 $ 1,500.00 $ 120.00 $ 780.00 $ 10.00 $ 130.00 $ 10.00 $ 62.80 $ 1,560.00 $ 120.00 $ 753.60 $ 10.00 $ 135.00 $ 10.00 $ 60.20 $ 1,620.00 $ 120.00 $ 722.40 $ 10.00 $ 140.00 $ 10.00 $ 150.00 $ 57.20 $ 1,680.00 $ 120.00 $ 1,800.00 $ 686.40 $ 105.00 12 Price Annual Revenue (millions) Annual VC (millions) Annual FC (millions) Annual Total Costs (millions) $ 30.00 $ 10.00 $ 10.00 $ 10.00 $ 120.00 $ 120.00 $ 120.00 $ 10.00 $ 10.00000 $ 120.00 $ 10.00 $ 10.00000 00
$ 120.00 $ 10.00 $ 10.00000 00
$ 180.00 $ 120.00 $ 10.00 $ 10.00000 00
$ 120.00 $ 10.00 $ 16.00 $ 10.00000 00
$ 18.00 $ 120.00 $ 10.00 $ 10.00000 00
$ 120.00 $ 26.50 $ 10.00 $ 10.00000 $ 18.05 $ 120.00 $ 216.60 $ 26.00 $ 10.00 $ 10.00000 $ 18.00 $ 120.00 $ 216.00 $ 25.50 $ 10.00 $ 18.00 $ 10.00000 $ 17.90 $ 216.00 $ 120.00 $ 214.80 $ 25.00 $ 10.00 $ 10.00000 $ 17.75 $ 120.00 $ 213.00 $ 10.00 $ 10.00000 $ 120.00 $ 10.00 $ 10.00000 $ 120.00 $ 10.00 $ 20.00 $ 10.00000 $ 17.00 $ 240.00 $ 120.00 $ 360.00 $ 204.00 $ 10.00 $ 10.00000 $ 120.00 $ 10.00 $ 10.00000 $ 120.00 $ 22.00 $ 10.00 $ 10.00000 $ 120.00 $ 21.50 $ 47.30 $ 10.00 $ 22.00 $ 10.00000 $ 567.60 $ 264.00 $ 120.00 $ 21.00 $ 47.25 $ 10.00 $ 22.50 $ 10.00000 $ 567.00 $ 120.00 and 1.5 Million Deluxe Boxes per month. With environmental concerns over the use of the materials and techniques to make the Deluxe Boxes the company director is concerned over its longterm feasibility. The marketing manager is convinced that under the current cost allocation Deluxe boxes is the highest contributor to company gross profit. How much profit is made on each product ? Also calculate the Gross Profit percentage for each product. HINT Use the annual information calculated in to complete Question 2. Complete the grey spaces
per month )
9 10.5 18 $ (in millions) $ (in millions) $ 1,080.00 $ 1,260.00 $ 13.50 $ 120.00 $ 120.00 $ 240.00 9 1.5 10.5 108 18 126 10.00 10.00 20.00 Millions Millions $ 2,030.40 $ 513.00 $ 1,080.00 $180 $ 8.80 $ 13.50 $ 120.00 $ 120.00 $ 830.40 $ 213.00 40.90% 41.50% 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
of Drivers
$ 47.00 $ 50.00 500 1,000 7,000 Labour Hours $ 5.00 200 800 1,000.00 9,000.00 10,000.00 6.00
N/A N/A 108 18 N/A $ – 0 Question 1 $ 2,030.40 $ 513.00 Profit % 40.90% 41.50% Box.
18.00 $ 18.80 15 40.90% Question 2 -11.00% 41.00% $ 120.00 18 $ 15.00 Total $ 90.00 $15 $ 180.00 Fixed Costs $ 120.00 >Sheet Maximization has been populated in Cells A to H of Q 1. Assuming the company operates months of the year convert the information from Project 2 to annual information for both Standard and Deluxe Boxes.
22
( obtain from Project 2)
12 Boxes sold per month in millions
/unit
VC Costs (FC+VC)
(millions)
0.00
.00
00.00
4.00
0
.80
$ 10.00 $ 3.00 $ 36.00 6.00
0
$ 10.00 $ 3.00 $ 36.00 5.20
$ 10.00 $ 3.00 $ 36.00 2.80
$ 10.00 $ 3.00 $ 36.00 0.00
$ 10.00 $ 3.00 .00
$ 36.00 $ 10.00 $ 3.00 $ 36.00 $ 10.00 $ 3.00 $ 36.00 $ 10.00 $ 3.00 $ 36.00 $ 10.00 $ 3.00 $ 36.00 $ 10.00 $ 3.00 .00
$ 36.00 $ 10.00 $ 3.00 .00
$ 76.80 $ 36.00 $ 921.60 $ 10.00 $ 3.00 $ 76.20 $ 1,320.00 $ 36.00 $ 914.40 $ 10.00 $ 3.00 $ 75.20 $ 36.00 $ 902.40 $ 10.00 $ 3.00 $ 73.80 $ 36.00 $ 885.60 $ 10.00 $ 3.00 $ 72.00 .00
$ 36.00 $ 864.00 $ 10.00 $ 3.00 $ 69.80 $ 36.00 $ 837.60 $ 10.00 $ 3.00 $ 67.20 $ 36.00 $ 806.40 $ 10.00 $ 3.00 $ 64.20 $ 36.00 $ 770.40 $ 98.00 12 Price Annual Revenue (millions) Annual VC (millions) Annual FC (millions) Annual Total Costs (millions) $ 30.00 $ 10.00 $ 10.00 $ 3.00 $ 120.00 $ 36.00 $ 10.00 $ 3.00 00
$ 20.40 $ 36.00 $ 180.00 $ 10.00 $ 3.00 00
$ 36.00 0
$ 10.00 $ 15.00 $ 3.00 $ 180.00 $ 36.00 $ 10.00 $ 3.00 00
$ 36.00 $ 10.00 $ 16.00 $ 3.00 00
$ 36.00 $ 10.00 $ 16.50 $ 3.00 00
$ 198.00 $ 36.00 $ 10.00 $ 17.00 $ 3.00 $ 25.05 $ 204.00 $ 36.00 $ 300.60 $ 10.00 $ 3.00 00
$ 25.00 $ 36.00 $ 300.00 $ 10.00 $ 18.00 $ 3.00 00
$ 24.90 $ 216.00 $ 36.00 $ 298.80 $ 25.00 $ 10.00 $ 18.50 $ 3.00 00
$ 24.75 $ 222.00 $ 36.00 $ 297.00 $ 10.00 $ 19.00 $ 3.00 $ 228.00 $ 36.00 $ 10.00 $ 19.50 $ 3.00 00
$ 234.00 $ 36.00 $ 10.00 $ 20.00 $ 3.00 00
$ 24.00 $ 240.00 $ 36.00 $ 23.00 $ 10.00 $ 20.50 $ 3.00 $ 246.00 $ 36.00 $ 22.50 $ 10.00 $ 21.00 $ 3.00 $ 252.00 $ 36.00 $ 288.00 $ 22.00 $ 10.00 $ 21.50 $ 3.00 $ 258.00 $ 36.00 $ 21.50 $ 47.30 $ 10.00 $ 22.00 $ 3.00 $ 567.60 $ 264.00 $ 36.00 $ 300.00 $ 21.00 $ 47.25 $ 10.00 $ 22.50 $ 3.00 $ 567.00 $ 36.00 and 1.5 Million Deluxe Boxes per month. With environmental concerns over the use of the materials and techniques to make the Deluxe Boxes the company director is concerned over its longterm feasibility. The marketing manager is convinced that under the current cost allocation Deluxe boxes is the highest contributor to company gross profit. How much profit is made on each product ? Also calculate the Gross Profit percentage for each product. HINT Use the annual information calculated in to complete Question 2. Complete the grey spaces
per month )
9 10.5 108 18 $ (in millions) $ (in millions) $ 1,080.00 $ 1,260.00 $ 120.00 $ 36.00 $ 297.00 9 1.5 10.5 108 18 126 120.00 36.00 156.00 Millions Millions $ 2,030.40 $ 513.00 $ 1,080.00 $180 $ 950.40 $ 333.00 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
of Drivers
$ 47.00 $ 50.00 500 1,000 7,000 Labour Hours $ 5.00 200 800 1,000.00 9,000.00 10,000.00 6.00
N/A $ 18.00 $ 156.00 108 18 N/A Question 1 $ 2,030.40 $ 513.00 Box.
$ 18.80 15 Question 2 40.90% 18.21% $ 133.71 $ 270.00 18 $ 15.00 Total $ 90.00 $15 $ 180.00 Contribution $ 950.40 Turnitin Report Formatting Title Page Citation Outline1
In this Project you will analyse 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. Use Information you calculated in project 2 Tab 3
Profit
12
1
10
Question 1
Profit Maximization
Standard Boxes
Quantity
Price
Revenue
VC
FC / per month (millions)
Total
Daily profit (revenue -all costs)
Annual Revenue (millions)
Annual VC (millions)
Annual FC (millions)
Annual
Total Costs
Annual Profit
5
$ 22.00
$
11
$
10.00
$ 50.00
$
6
$ 1,3
20.00
$ 600.00
$ 120.00
$
7
5.5
$ 2
1.6
$ 11
8
$ 55.00
$ 65.00
$ 53.80
$ 1,425.60
$ 660.00
$ 780.00
$ 645.60
6
$ 2
1.2
$ 127.20
$ 60.00
$ 70.00
$ 57.20
$ 1,526.40
$ 840.00
$ 686.40
6.5
$ 20.80
$
13
$ 75.00
$ 60.20
$ 1,622.40
$
9
$ 722.40
7
$ 20.40
$
14
$ 80.00
$ 62.80
$ 1,713.60
$ 960.00
$ 753.60
7.5
$ 20.00
$
15
$ 85.00
$ 1,
800
$ 1,020.00
8
$ 19.60
$ 156.80
$ 90.00
$ 66.80
$ 1,881.60
$ 1,080.00
$ 801.60
8.5
$ 19.20
$ 163.20
$ 95.00
$ 68.20
$ 1,958.40
$ 1,140.00
$ 8
18
9
$ 18.80
$ 169.20
$ 100.00
$ 69.20
$ 2,030.40
$ 1,
200
$ 830.40
9.5
$ 18.40
$ 174.80
$ 105.00
$ 69.80
$ 2,097.60
$ 1,260.00
$ 837.60
10
$
18.00
$ 180.00
$ 110.00
$ 2,160.00
10.5
$ 17.60
$ 184.80
$ 115.00
$ 2,217.60
$ 1,380.00
11
$ 17.20
$ 189.20
$ 2,270.40
$ 1,440.00
1
1.5
$ 16.80
$ 193.20
$ 125.00
$ 2,318.40
$ 1,
500
12
$ 16.40
$ 196.80
$ 130.00
$ 2,361.60
$ 1,560.00
12.5
$ 16.00
$ 200.00
$ 135.00
$ 2,400.00
$ 1,620.00
13
$ 15.60
$ 202.80
$ 140.00
$ 2,433.60
$ 1,680.00
13.5
$ 15.20
$ 205.20
$ 145.00
$ 2,462.40
$ 1,740.00
14
$ 14.80
$ 207.20
$ 2,486.40
$ 168.80
$ 63.80
$ 2,025.60
Profit Maximization
Deluxe Boxes
Deluxe boxes sold per month (millions)
Revenue (price x volume)
Variable Cost per standard box
Variable Cost (cost per unit x volume)
Fixed cost per month (millions)
Total Cost (Fixed + Variable)
Daily Profit (revenue – all costs)
Annual Profit (millions)
1
$ 30.00
$ 10.00000
$ 20.0000
$ 360.00
$ 240.00
1.2
$ 29.50
$ 35.40
$ 12.00
$ 22.0000
$ 13.40
$ 424.80
$ 144.00
$ 264.00
$ 160.80
1.35
$ 29.00
$ 39.15
$ 13.50
$ 23.50
$ 15.65
$ 469.80
$ 162.00
$ 282.00
$ 187.80
1.5
$ 28.50
$ 42.75
$ 15.00
$ 25.00
$ 17.75
$ 513.00
$ 300.00
$ 213.00
1.55
$ 28.00
$ 43.40
$ 15.50
$ 25.50
$ 17.90
$ 520.80
$ 186.00
$ 306.00
$ 214.80
1.6
$ 27.50
$ 44.00
$ 26.00
$ 528.00
$ 192.00
$ 312.00
$ 216.00
1.65
$ 27.00
$ 44.55
$ 16.50
$ 26.50
$ 18.05
$ 534.60
$ 198.00
$ 318.00
$ 216.60
1.7
$ 45.05
$ 17.00
$ 27.0000
$ 540.60
$ 204.00
$ 324.00
1.75
$ 45.50
$ 17.50
$ 27.5000
$ 546.00
$ 210.00
$ 330.00
1.8
$ 45.90
$ 28.0000
$ 550.80
$ 336.00
1.85
$ 46.25
$ 18.50
$ 28.5000
$ 555.00
$ 222.00
$ 342.00
1.9
$ 24.50
$ 46.55
$ 19.00
$ 29.0000
$ 17.55
$ 558.60
$ 228.00
$ 348.00
$ 210.60
1.95
$ 24.00
$ 46.80
$ 19.50
$ 29.5000
$ 17.30
$ 561.60
$ 234.00
$ 354.00
$ 207.60
2 $ 23.50
$ 47.00
$ 30.0000
$ 564.00
2.05
$ 23.00
$ 47.15
$ 20.50
$ 30.5000
$ 16.65
$ 565.80
$ 246.00
$ 366.00
$ 199.80
2.1
$ 22.50
$ 47.25
$ 21.00
$ 31.0000
$ 16.25
$ 567.00
$ 252.00
$ 372.00
$ 195.00
2.15
$ 47.30
$ 21.50
$ 31.5000
$ 15.80
$ 567.60
$ 258.00
$ 378.00
$ 189.60
2.2
$ 32.0000
$ 15.30
$ 384.00
$ 183.60
2.25
$ 32.5000
$ 14.75
$
270.00
$ 390.00
$ 177.00
$ 44.13
$ 27.66
$ 16.48
Question 2
The Company currently operates by selling 9 Million
Standard Boxes
Question 1
37.5
Standard Boxes Deluxe Boxes Total
Number Of Boxes (in
Millions
1,5
Volume per year ( millions)
108
126
$ (in millions)
Revenue $ 2,030.40 $ 513.00
$ 2,543.40
Less:
Variable Costs
$180
Marginal
Contribution
$ 8.80
$ 22.30
Less:
Fixed Costs
Profit $ 830.40 $ 213.00
$ 1,043.40
Profit
%
40.90%
41.50%
82.40%
Sheet2
Question 1
A new intern at the company believes that fixed cost based and allocated on a daily basis is incorrect and suggests allocating the Fixed Costs between Standard and Deluxe Boxes Based on the number of boxes sold. How much costs are allocated to each product based on the method suggested by the intern? To prove s/he point the intern also calculated the profit percentage. Complete the grey spaces
Standard Boxes Deluxe Boxes Total
Volumes (per Month)
Volumes per year ( millions)
Total Fixed Costs (Millions- from Tab1)
New Profit
Sales
Less VC
Contribution Margin
Less Fixed Costs
Operting Profit
Profit %
Sheet3
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
Table 1
Manufacturing overhead
$ Amount
Cost driver
Standard Box
Deluxe Box
Totals
Cost of
Deluxe Boxes
Cost of Standard Boxes
Total Cost Check (must agree to Column B7:B14)
Depreciation
$47.00
Square feet
7,000
80,000
87,000
$ 43.22
$ 3.78
Maintenance
$50.00
Direct
Labour Hours
1,000
9,000
10,000
$ 45.00
$ 5.00
Purchase order processing
$9
Number of purchases orders
4,500
5,000
$ 8.10
$ 0.90
$ 9.00
Inspection
$34
Number of employees
6000
$ 29.14
$ 4.86
$ 34.00
Indirect Materials
$5.00
1,000.00
9,000.00
10,000.00
$ 4.50
$ 0.50
Supervision
$7.00
#of inspections
1000
$ 5.60
$ 1.40
$ 7.00
Supplies
$4.00
Units manufactured
$ 3.60
$ 0.40
$ 4.00
Total Allocated costs
$15
N/A
$ – 0
Number of boxes per year
Allocated Cost per Box
Deluxe Boxes Deluxe Boxes Total
Sales
Less: Variable Costs $ 1,080.00 $180
Contribution $ 8.80 $ 13.50
Less: Fixed Costs $ 120.00 $ 120.00
Profit $ 830.40 $ 213.00
Sheet4
Question 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
If the 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 fixed 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 the 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
126.00
Sellin price per unit
$ 33.80
Sales $ 2,030.40 270.00
$ 2,300.40
VC $ 1,080.00 $180 20.00
Contribution $ 8.80 $ 13.50 $ 22.30
Fixed Costs $ 120.00 $ 120.00 $ 240.00
Profit $ 830.40
– 30.00
$ 800.40
GP %
-11.00%
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 profit percentage for the deluxe boxes as they have on standard boxes. How much additional profit are they requiring? Complete the grey spaces.
Required profit
41.00%
See Tab 3
Less: Existing profit
See Q 1 above
Equals: Difference in additional profit required
52.00%
Question 3
Work out the percentage that they should mark up on the costs to achieve the same profit % as for the standard boxes. Complete the grey spaces
%
Sales $ 2,030.40
Less Required GP%
Equals: Mark up percentage on cost
$ 2,029.99
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
Total Costs $ 300.00
Sales
$ 270.00
Units sold
Sales Price per unit
Question 5
Prove that your calculation in Q 4 is correct. Complete the grey boxes.
Proof:
Per Unit
Sales $ 270.00 $ 15.00
Less VC $ 180.00 12
Contribution
$ 8.00
Fixed Costs $ 120.00
Net Profit
Profit %
33.00%
Question 5
The marketing manger is concerned that the change could havea significant impact on sales as ciustomers may see the sustaiable 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.
$ Totals
Selling price
Less: Variable costs
Contribution $ 13.50
Breakeven Quantity
– 0.73
BreakEven Value
$ 8.89
1
In this Project you will analyse 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. Use Information you calculated in project 2 Tab 3
Profit
12
1
10
Question 1
Profit Maximization
Standard Boxes
Quantity
Price
Revenue
VC
FC / per month (millions)
Total
Daily profit (revenue -all costs)
Annual Revenue (millions)
Annual VC (millions)
Annual FC (millions)
Annual
Total Costs
Annual Profit
5
$ 22.00
$
11
$ 10.00
$ 50.00
$ 3.00
$ 53.00
$ 5
7
$ 1,3
20.00
$
6
$
36.00
$ 636.00
$ 6
8
5.5
$ 2
1.6
$ 1
18
$ 55.00
$ 58.00
$ 60.80
$ 1,425.60
$ 660.00
$ 6
9
$ 729.60
6
$ 2
1.2
$ 127.20
$ 60.00
$ 63.00
$ 64.20
$ 1,526.40
$ 720.00
$ 756.00
$ 770.40
6.5
$ 20.80
$
13
$ 65.00
$ 68.00
$ 67.20
$ 1,622.40
$ 780.00
$ 816.00
$ 806.40
7
$ 20.40
$
14
$ 70.00
$ 73.00
$ 69.80
$ 1,713.60
$ 840.00
$ 876.00
$ 837.60
7.5
$ 20.00
$
15
$ 75.00
$ 78.00
$ 72.00
$ 1,
800
$ 900.00
$ 936.00
$ 864.00
8
$ 19.60
$ 156.80
$ 80.00
$ 83.00
$ 73.80
$ 1,881.60
$ 960.00
$ 996.00
$ 885.60
8.5
$ 19.20
$ 163.20
$ 85.00
$ 88.00
$ 75.20
$ 1,958.40
$ 1,020.00
$ 1,056.00
$ 902.40
9
$ 18.80
$ 169.20
$ 90.00
$ 93.00
$ 76.20
$ 2,030.40
$ 1,080.00
$ 1,116.00
$ 914.40
9.5
$ 18.40
$ 174.80
$ 95.00
$ 98.00
$ 76.80
$ 2,097.60
$ 1,140.00
$ 1,176.00
$ 921.60
10
$
18.00
$ 180.00
$ 100.00
$ 103.00
$ 77.00
$ 2,160.00
$ 1,
200
$ 1,236.00
$ 924.00
10.5
$ 17.60
$ 184.80
$ 105.00
$
108
$ 2,217.60
$ 1,260.00
$ 1,296.00
11
$ 17.20
$ 189.20
$ 110.00
$ 113.00
$ 2,270.40
$ 1,356.00
1
1.5
$ 16.80
$ 193.20
$ 115.00
$ 118.00
$ 2,318.40
$ 1,380.00
$ 1,416.00
12
$ 16.40
$ 196.80
$
120.00
$ 123.00
$ 2,361.60
$ 1,440.00
$ 1,476.00
12.5
$ 16.00
$ 200.00
$ 125.00
$ 128.00
$ 2,400.00
$ 1,
500
$ 1,536.00
13
$ 15.60
$ 202.80
$ 130.00
$ 133.00
$ 2,433.60
$ 1,560.00
$ 1,596.00
13.5
$ 15.20
$ 205.20
$ 135.00
$ 138.00
$ 2,462.40
$ 1,620.00
$ 1,656.00
14
$ 14.80
$ 207.20
$ 140.00
$ 143.00
$ 2,486.40
$ 1,680.00
$ 1,716.00
$ 168.80
$ 70.80
$ 2,025.60
Profit Maximization
Deluxe Boxes
Deluxe boxes sold per month (millions)
Revenue (price x volume)
Variable Cost per standard box
Variable Cost (cost per unit x volume)
Fixed cost per month (millions)
Total Cost (Fixed + Variable)
Daily Profit (revenue – all costs)
Annual Profit (millions)
1
$ 30.00
$ 13.0000
$ 17.00
$ 360.00
$
156.00
$ 204.00
1.2
$ 29.50
$ 35.40
$ 12.00
$ 15.00
$ 424.80
$ 144.00
$ 244.80
1.35
$ 29.00
$ 39.15
$ 13.50
$ 16.50
$ 22.65
$ 469.80
$ 162.00
$ 198.00
$ 27
1.8
1.5
$ 28.50
$ 42.75
$ 18.0000
$ 24.75
$ 513.00
$ 216.00
$ 297.00
1.55
$ 28.00
$ 43.40
$ 15.50
$ 18.50
$ 24.90
$ 520.80
$ 186.00
$ 222.00
$ 298.80
1.6
$ 27.50
$ 44.00
$ 19.00
$ 25.00
$ 528.00
$ 192.00
$ 228.00
$ 300.00
1.65
$ 27.00
$ 44.55
$ 19.50
$ 25.05
$ 534.60
$ 234.00
$ 300.60
1.7
$ 26.50
$ 45.05
$ 20.0000
$ 540.60
$ 240.00
1.75
$ 26.00
$ 45.50
$ 17.50
$ 20.50
$ 546.00
$ 210.00
$ 246.00
1.8
$ 25.50
$ 45.90
$ 21.00
$ 550.80
$ 252.00
1.85
$ 46.25
$ 21.50
$ 555.00
$ 258.00
1.9
$ 24.50
$ 46.55
$ 22.0000
$ 24.55
$ 558.60
$ 264.00
$ 294.60
1.95
$ 24.00
$ 46.80
$ 22.50
$ 24.30
$ 561.60
$
270.00
$ 291.60
2
$ 23.50
$ 47.00
$ 23.00
$ 564.00
$ 276.00
$ 288.00
2.05
$ 47.15
$ 23.5000
$ 23.65
$ 565.80
$ 282.00
$ 283.80
2.1
$ 47.25
$ 24.0000
$ 23.25
$ 567.00
$ 279.00
2.15
$ 47.30
$ 24.5000
$ 22.80
$ 567.60
$ 294.00
$ 273.60
2.2
$ 25.0000
$ 22.30
$ 267.60
2.25
$ 25.5000
$ 21.75
$ 270.00
$ 306.00
$ 261.00
$ 44.13
$ 20.66
$ 23.48
Question 2
The Company currently operates by selling 9 Million
Standard Boxes
Question 1
37.5
Standard Boxes Deluxe Boxes Total
Number Of Boxes (in
Millions
1,5
Volume per year ( millions)
126
$ (in millions)
Revenue $ 2,030.40 $ 513.00
$ 2,543.40
Less:
Variable Costs
$180
Marginal
Contribution
$ 950.40
$ 333.00
$ 1,283.40
Less:
Fixed Costs
$ 156.00
Profit
$ 830.40
$ 1,127.40
Profit
%
40.90%
57.89%
44.33%
Sheet2
Question 1
A new intern at the company believes that fixed cost based and allocated on a daily basis is incorrect and suggests allocating the Fixed Costs between Standard and Deluxe Boxes Based on the number of boxes sold. How much costs are allocated to each product based on the method suggested by the intern? To prove s/he point the intern also calculated the profit percentage. Complete the grey spaces
Standard Boxes Deluxe Boxes Total
Volumes (per Month)
Volumes per year ( millions)
Total Fixed Costs (Millions- from Tab1)
New Profit
Sales
Less VC
Contribution Margin
Less Fixed Costs
$ 133.71
$ 22.29
Operting Profit
$ 816.69
$ 60.57
Profit %
40.22%
11.81%
Sheet3
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
Table 1
Manufacturing overhead
$ Amount
Cost driver
Standard Box
Deluxe Box
Totals
Cost of
Deluxe Boxes
Cost of Standard Boxes
Total Cost Check (must agree to Column B7:B14)
Depreciation
$47.00
Square feet
7,000
80,000
87,000
$ 43.22
$ 3.78
Maintenance
$50.00
Direct
Labour Hours
1,000
9,000
10,000
$ 45.00
$ 5.00
Purchase order processing
$9
Number of purchases orders
4,500
5,000
$ 8.10
$ 0.90
$ 9.00
Inspection
$34
Number of employees
6000
$ 29.14
$ 4.86
$ 34.00
Indirect Materials
$5.00
1,000.00
9,000.00
10,000.00
$ 4.50
$ 0.50
Supervision
$7.00
#of inspections
1000
$ 5.60
$ 1.40
$ 7.00
Supplies
$4.00
Units manufactured
$ 139.16
$ 16.84
$ 4.00
Total Allocated costs
$15
N/A
$
108.00
Number of boxes per year
$
126.00
Allocated Cost per Box
$ 7.73
$ 0.16
Deluxe Boxes Deluxe Boxes Total
Sales
Less: Variable Costs $ 1,080.00 $180
Contribution $ 950.40 $ 90.00
Less: Fixed Costs $ 16.84 $ 139.16
Profit
$ 933.56
$ 193.84
Profit % 40.22%
37.79%
Sheet4
Question 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
If the 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 fixed 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 the 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
$ 33.80
Sales $ 2,030.40 270.00
$ 2,300.40
VC $ 1,080.00 $180 20.00
Contribution $ 950.40 $ 90.00
$ 1,040.40
Fixed Costs $ 16.84 $ 139.16 $ 156.00
Profit $ 933.56
– 49.16
$ 884.40
GP %
45.99%
18.21%
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 profit percentage for the deluxe boxes as they have on standard boxes. How much additional profit are they requiring? Complete the grey spaces.
Required profit
See Tab 3
Less: Existing profit
-11.00%
See Q 1 above
Equals: Difference in additional profit required
51.90%
Question 3
Work out the percentage that they should mark up on the costs to achieve the same profit % as for the standard boxes. Complete the grey spaces
%
Sales $ 2,030.40
Less Required GP%
Equals: Mark up percentage on cost
$ 2,030.22
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
Total Costs
$ 313.71
Sales
Units sold
Sales Price per unit
Question 5
Prove that your calculation in Q 4 is correct. Complete the grey boxes.
Proof:
Per Unit
Sales $ 270.00 $ 15.00
Less VC $ 180.00 12
Contribution $ 950.40
Fixed Costs $ 139.16
Net Profit
Profit %
33.00%
Question 5
The marketing manger is concerned that the change could havea significant impact on sales as ciustomers may see the sustaiable 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.
$ Totals
Selling price
Less: Variable costs
Fixed Costs $ 22.29
Breakeven Quantity
– 0.73
BreakEven Value
$ 8.89
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