ABC Costing Method

 

 

what is the the "Using Gross Profit %"for the 3 empty grey spaces ... 

 

Note the existing profit is not 52.17% for the second empty box 

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 theproduction 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 andend up making substantially higher profit than they ever did on the Deluxe Boxes. Based on knowledge of price elasticity of demand s/he/fthey suggest that it may in time evenresult 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 theSustainable 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 511 per box vice the original $20 per box. Required [complete the grey spaces) 1)Determine the profit and profit percentage for the Standard and Sustainable Deluxe Boxes Standard Boxes Sustainable Deluxe Boxes TotalQuantity 108.00 18.00 125.00Selling price per unit s 1880 (5 23003 41.80Revenue s 2,03040 | & 41400 | 2,444 40Subtract: Variable Costs s 108000 | & 19800 | & 1,279.00Equals: Contribution Margin S 95040 | S 21600 | S 1,166.40Subtract: Fixed Costs 5 16.84 | 5 8350 (5 100.34Equals: Operating Profit 5 93356 | 5 13250 | 5 1,066.06Operating Profit % (based on revenue) 45 98% 32.01% 43 61%Contribution Margin % 46.81% 52.17% 47 71% Question 2 The CEO is not convinced and still thinks that no form of a Deluxe Box, sustainable or not should be produced. The CEO indicates that consideration of the production of asustainable Deluxe Boxes will only be considered if it can achieve at least the same operating profit percentage for the Sustainable Deluxe Boxes as the operating profitpercentage indicated under the ABC costing method for Standard Boxes [See Tab 3) . Required [Complete the grey spaces). Using Operating Profit % Using Gross Profit %Required profit 45 98%Subtract: Existing profit 32.01%Equals: Difference in additional profitrequired 1397% | 5ee Question 1See O 1 above LGI's production managers think that the profit on Deluxe Boxes are much lower than the Intern suggested after recently attending a course at UMGC where theylearned about ABC costing. They propose allocating the total fixed costs between Standard and Deluxe boxes based on this method . They collected informationabout the cost drivers and the break up of the total costs in Table 1 below. How much overhead would be allocated to Standard and Deluxe Boxes ( in total and perunit) using this method? Show all supporting calculations. Complete the grey spacesTable 1Cost for StandardCost of DeluxeManufacturing overhead$ Amount (millions)Cost driverStandard BoxDeluxe BoxTotals of DriversABCBoxesBoxesDepreciation$47.00Square feet7,00080,00087,0003.78$43.22$47.00Maintenance$50.00Direct Labor Hours1,0003,0001,0005.0045.00$50.0Purchase orderNumber of$95001,5005,000S0.90S8.10S9.00processingpurchases ordersNumber ofInspection$341,00050007,0004.8629.14S34.00employeesIndirect Materials$5.00Labor Hours1,0009,00010,000.00| $0.501.50S5.00Supervision$7.00#of inspections2008001,0001.40$5.607.0Supplies$4.00Units manufactured1,0009,00010,000.00 S0.403.60S4.00Total Allocated costs$156.0016.84 | $139.16 | $156.00Number of boxes per10818yearAllocated Cost per Box0.16$7.73S1.24Question 1Standard BoxesDeluxe BoxesTotalRevenue$2,030.40 | $513.00 | $2,543.40Subtract: Variable Costs$1,080.00 | $360.00$1,440.00Equals: Contribution$50.40$153.00$1,103.40Subtract: Fixed Costs16.84$139.16$156.00Equals: Operating Profit933.56 | $13.84| $947.40Operating Profit %based on Revenue)45.98%2.70%37.25%