KM CASE STUDY

KM Case Study #1 [LO 6.5, LO 6.9] Susan Lo picked up the phone and called her boss, Phll Takata, the vice presldent of marketing at Jewel Clasps Corporation: "Phil, I'm not sure how to go about answering the questions that came up at the meeting with the president yesterday. What's the problem?" The presldent wanted to know the break-even point for each of the company's products, but I am having trouble figuring them out." 'm sure you can handle it. Susan. And, by the way. I need your analysis on my desk tomorrow morning at 8:00 sharp in time for the follow-up meeting at 9:00. Jewel Clasps Corporation makes three dlifferent types of Jewelry clasps In its manufacturing facility In North Carolina. Data concerning these products appear below Silver Copper 184,898 218,9ee 299,8ee $1.7 $1.6 $8.98 $1.80 $8.80 $8.68 Gold Annual sales volume Unit selling price Variable expense per unit Total fixed expenses are $257000 per year. All three products are sold In highly competitive markets, so the company Is unable to ralse prices without losing an unacceptable numbers of customers. The company has an extremely effective lean production system, so there are no beginning or ending work In process or finished goods Inventorles. TIP: To answer the questions below, It will be most helpful if you prepare segmented Income statements as llustrated In your textbook Required: 1. What Is the company's over-all break-even polnt In dollar sales? 2 Of the total fixed expenses of $257,000, $17,570 could be avolded if the Gold product is dropped, $137600 if the Silver product Is dropped, and $57,900 If the Copper product is dropped. The remalning fixed expenses of $43.930 conslst of common fixed expenses such as administrative salarles and rent on the factory building that could be avolded only by going out of business entirely. a. What Is the break-even polnt In unlt sales for each product? b. If the company sells exactly the break-even quantity of each product, what will be the overall profit of the company? KM MC: Reason loss occurs at the break-even In Part 2 (b) of the previous question, you calculated a profit or loss if Jewel Clasps sells exactly the break-even quantity of each of its three products. What is the primary reason for the result you obtained in Part 2 (b) of the Jewel Clasps case? Multiple Choice When a company sells at the segment level break-even point, its sales are not high enough to cover (pay for) its common Txed expenses. Selling at the segment level break-even point means that the company is able to cover (pay for) all of its fixed expenses, no matter whether they are traceable or common When a company sells at the segment level break-even point, its sales are not high enough to cover (pay for) its traceable fixed expenses When a company sells at the segment level break-even point, its sales are not hign enough to cover pay for) its variable expenses. KM MC Types of Fixed Costs Every period, Jewel Clasps Incurs a number of different fixed costs, some of which are listed here: 1. The salary of the Sliver product line manager 2 Salarles of the CEO and CFO 3. Rent on the corporate headquarters 4. Fees pald to advertise an anti-tarnish kit that can be purchased with Copper clasps 5. Straight-line depreciation on the machine used to plate the Gold clasps with a special alloy Which of the costs above are traceable to one of Jewel's product lines? Select the best answer: Multiple Cholce #1 #4, and #5 are traceable fixed costs with respect to a product line. 0 # 2 & #3 are traceable fixed costs with respect to a product line. 0 # 1, #2 & #4, and #5 are traceable fixed costs with respect to a product line. #4 and #5 are traceable fixed costs with respect to a product line. KM MC: Should a company allocate common fixed expenses Which of the following statements is true? There may be more than one answer. Possible answers: 1. A segment's contribution margin minus its traceable fixed expenses equals the segment margin 2. Allocating a portion of common fixed costs to a segments real costs may make an otherwise profitable segment appear to be unprofitable. .A company's common fixed costs should be evenly allocated to business segments when computing the dollar sales for a segment to break break even. 4. A segment's traceable fixed costs should include only those costs that will disappear over time If the segment disappears. Multiple Choice The true statements are: #1, #2 and #4. The true statements are: #1. #2, #3, and #4. The true statements are: #1 and #2 O The true statements are $1,#2 and #3