Question 1 The sustainability manager is concerned about the long term sustainability implications of Deluxe Boxes on
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| 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 | $ 18.80 | $ 23.00 | $ 41.80 | ||||||
| Revenue | $ 2,030.40 | $ 414.00 | $ 2,444.40 | ||||||
| Subtract: Variable Costs | $ 1,080.00 | $ 198.00 | $ 1,279.00 | ||||||
| Equals: Contribution Margin | $ 950.40 | $ 316.00 | $ 1,166.40 | ||||||
| Subtract: Fixed Costs | $ 16.84 | $ 83.50 | $ 100.34 | ||||||
| Equals:OperatingProfit | $ 933.56 | $ 132.50 | $ 1,066.06 | ||||||
| Operating Profit % (based on revenue) | 45.98% | 32.01% | 43.61% | ||||||
| Contribution Margin % | ? | ? | ? | ||||||
| Question 2 | |||||||||
| The CEO is not convinced and still thinks that no form of a Deluxe Box, sustainable or not should be produced. The CEO indicates that consideration of the production of a Sustainable Deluxe Boxes will only be considered if it can achieve at least the same operating profit percentage for the Sustainable Deluxe Boxes as the operating profit percentage indicated under the ABC costing method for Standard Boxes (See Tab 3) . TAB 3 Expert Answer:
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