ACCT 6350 - Module 2 Mini-Case Study

Objective:Demonstrate understanding of Cost Estimation, Cost-Volume-Profit, and Short-term Decision-making

Deliverables:

2)Using the data and template provided, use the following two methods to make linear cost estimation equation (Total Cost = Unit Variable Cost x Units Sold + Total Fixed Cost):

a.How do you find a High-Low Method

b.How do you find a Linear Regression Method

3)Assume that a company has forecasted 5,800 units sold, has an average selling price of $25.00 per unit, unit variable cost of $10.00 per unit, and a total fixed cost equal to $84,000. Using the template provided, perform the following analyses:

b.how do you find the Break-even Sales Volume

c.how do you find this based on a target profit equal to $6,000

Weeks of the year Activity (Units Sold) Total Cost ($)

1 6,660 $139,248

2 6,300 $153,510

3 4,860 $138,258

4 6,900 $164,640

5 5,820 $150,474

6 6,300 $148,470

7 5,400 $135,420

8 7,140 $165,774

9 6,780 $149,250

10 6,420 $153,930

11 5,640 $137,604

12 5,880 $147,588

13 5,940 $139,938

14 6,780 $158,874

15 6,240 $153,264

16 6,960 $161,016

17 6,360 $152,100

18 6,600 $140,520

19 7,140 $150,108

20 6,420 $161,982

21 6,720 $162,624

22 5,280 $132,792

23 4,950 $142,680

24 5,940 $134,796

25 7,140 $145,698

26 6,840 $157,380

27 5,940 $153,642

28 6,780 $144,018

29 6,300 $154,140

30 5,640 $122,400

31 5,520 $140,640

32 5,220 $145,506

33 4,800 $127,440

34 6,840 $144,288

35 5,280 $126,288

36 5,760 $143,976

37 6,660 $131,544

38 5,820 $140,838

39 6,960 $164,640

40 5,400 $134,040

41 5,160 $145,860

42 4,860 $135,696

43 5,280 $131,136

44 7,080 $168,468

45 5,820 $132,564

46 6,060 $139,338

47 6,780 $164,268

48 7,200 $165,600

49 4,920 $128,136

50 5,220 $143,328

51 6,060 $140,400

52 5,700 $138,390

Weeks of Activity the year (Units Sold) Total Cost ($) Max Min Step #1 - Calculate Difference in Cost Total Cost at High Activity - Total Cost at Low Activity = Difference in Total Cost Step #2 - Calculate Difference in Activity High Activity (Units Sold) - Low Activity (Units Sold) = Difference in Data Usage Step #3 - Calculate Unit Variable Cost by dividing Step#1 by Step#2 Difference in Total Cost : Difference in Activity (Units Sold) = Unit Variable Cost Step #4 - Use Unit Variable Cost to calculate Total Fixed Cost (can use either high or low activity) Total Cost at High Activity Total Cost at Low Activity High Activity (Units Sold) Low Activity (Units Sold) x Unit Variable Cost x Unit Variable Cost - Total Variable Cost at High Usage - Total Variable Cost at Low Usage = Total Fixed Cost = Total Fixed Cost Cost Estimation Equation Total Cost =INCOME STATEMENTS Blue Font = Direct input Data Number of units sold Price/Revenues Variable Cost Contribution Margin Total Fixed Cost Operating Profit Operating Profit % Forecast Break-even Target Prot Total Per Unit Total Per Unit 96 Total Per Unit 96 5.800 5 25.00 10.00 84,000 :. INCOME STATEMENTS Blue Font = Direct Input Data Status uo Forecast High Qualig Low Price Total Per Unit Total Per Unit Total Per Unit Number of units sold Price / Revenues Variable Cost Contribution Margin Total Fixed Cost Operating Profit Operating Prot '56 Margin of Safety 96 Units Sales Revenue Operating Leverage Degree of Operating Leverage Data: Throttle Body A Throttle Body B Selling price per unit $ 16.00 $ 24.00 Variable cost per unit $ 12.50 $ 19.00 Units per Casting Hour 50 20 Quantity Demanded 300,000 90,000 Total Casting Hours Required to satisfy Demand Aluminum Casting Capacity = 9,000 Hours Calculate Profit-maximizing Product Mix: Throttle Body A Throttle Body B Contribution Margin per unit ........ Contribution Margin per Casting Hour Planned Production Volume Total Casting Hours Required for Production Volume ..A