Mastery Problem: Cost$-$Volume$-$Profit Analysis

Question Content Area

Cost Behavior

Cover$-$to$-$Cover Company is a manufacturer of shelving for books. The company has compiled the following cost data, and wants your help in determining the cost behavior. After reviewing the data, complete requirements $(1)$ and $(2)$ that follow.

Units

Produced Total

Lumber

Cost Total

Utilities

Cost Total Machine

Depreciation

Cost

$8,000$ shelves $$88,000$ $$10,200$ $$130,000$

$16,000$ shelves $176,00019,400130,000$

$32,000$ shelves $352,00037,800130,000$

$40,000$ shelves $440,00047,000130,000$

$1.$ Determine whether the costs in the table are variable, fixed, mixed, or none of these.

Lumber

Utilities

Depreciation

$2.$ For each cost, determine the fixed portion of the cost, and the per$-$unit variable cost. If there is no amount or an amount is zero, enter $"0".$ Recall that, for N $=$ Number of Units Produced, Total Costs $=($Variable Cost Per Unit x N$)+$ Fixed Cost. Complete the following table with your answers. Round variable portion of cost $($per unit$)$ answers to two decimal places.

Cost Fixed Portion

of Cost Variable Portion

of Cost $($per Unit$)$

Lumber $fill in the blank $052$c$53$fdefcafe$9\_4$

$fill in the blank $052$c$53$fdefcafe$9\_5$

Utilities fill in the blank $052$c$53$fdefcafe$9\_6$

fill in the blank $052$c$53$fdefcafe$9\_7$

Depreciation fill in the blank $052$c$53$fdefcafe$9\_8$

fill in the blank $052$c$53$fdefcafe$9\_9$

Question Content Area

High$-$Low

Biblio Files Company is the chief competitor of Cover$-$to$-$Cover Company in the bookshelf business. Biblio Files is analyzing its manufacturing costs, and has compiled the following data for the first six months of the year. After reviewing the data, answer questions $(1)$ through $(3)$ that follow.

Units Produced Total Cost

January $4,360$ units $$65,600$

February $2756,250$

March $1,00015,000$

April $8,775176,250$

May $1,75032,500$

June $3,01548,000$

$1.$ From the data previously provided, help Biblio Files Company estimate the fixed and variable portions of its total costs using the high$-$low method. Recall that Total Costs $=($Variable Cost Per Unit x Number of Units Produced$)+$ Fixed Cost. Complete the following table.

Total Fixed Cost Variable Cost per Unit

$fill in the blank a$34$d$6000$b$050$ffd$\_1$

$fill in the blank a$34$d$6000$b$050$ffd$\_2$

$2.$ With your Total Fixed Cost and Variable Cost per Unit from the high$-$low method, compute the total cost for the following values of N $($Number of Units Produced$).$

Number of

Units Produced

Total Cost

$3,500$ $fill in the blank a$34$d$6000$b$050$ffd$\_3$

$4,360$ fill in the blank a$34$d$6000$b$050$ffd$\_4$

$8,775$ fill in the blank a$34$d$6000$b$050$ffd$\_5$

$3.$ Why does the total cost computed for $4,360$ units not match the data for January?

a$.$ The high$-$low method is accurate only for months in which production is at full capacity.

b$.$ The high$-$low method only gives accurate data when fixed costs are zero.

c$.$ The high$-$low method gives a formula for the estimated total cost and may not match levels of production other than the highest and lowest.

d$.$ The high$-$low method gives accurate data only for levels of production outside the relevant range.

Question Content Area

Contribution Margin

Review the contribution margin income statements for Cover$-$to$-$Cover Company and Biblio Files Company on their respective Income Statements. Complete the following table from the data provided on the income statements. Each company sold $77,800$ units during the year.

Cover$-$to$-$Cover

Company Biblio Files

Company

Contribution margin ratio $($percent$)$ fill in the blank $87$f$6$d$0$f$6$a$06403$a$\_1$

$\%$ fill in the blank $87$f$6$d$0$f$6$a$06403$a$\_2$

$\%$

Unit contribution margin $fill in the blank $87$f$6$d$0$f$6$a$06403$a$\_3$

$fill in the blank $87$f$6$d$0$f$6$a$06403$a$\_4$

Break$-$even sales $($units$)$ fill in the blank $87$f$6$d$0$f$6$a$06403$a$\_5$

fill in the blank $87$f$6$d$0$f$6$a$06403$a$\_6$

Break$-$even sales $($dollars$)$ $fill in the blank $87$f$6$d$0$f$6$a$06403$a$\_7$

$fill in the blank $87$f$6$d$0$f$6$a$06403$a$\_8$

Question Content Area

Income Statement $-$ Cover$-$to$-$Cover

Cover$-$to$-$Cover Company

Contribution Margin Income Statement

For the Year Ended December $31,20$Y$8$

Sales $$389,000$

Variable costs:

Manufacturing expense $$233,400$

Selling expense $19,450$

Administrative expense $58,350(311,200)$

Contribution margin $$77,800$

Fixed costs:

Manufacturing expense $$5,000$

Selling expense $4,000$

Administrative expense $10,450(19,450)$

Operating income $$58,350$

Income Statement $-$ Biblio Files

Biblio Files Company

Contribution Margin Income Statement

For the Year Ended December $31,20$Y$8$

Sales $$389,000$

Variable costs:

Manufacturing expense $$155,600$

Selling expense $15,560$

Administrative expense $62,240(233,400)$

Contribution margin $$155,600$

Fixed costs:

Manufacturing expense $$79,250$

Selling expense $8,000$

Administrative expense $10,000(97,250)$

Operating income $$58,350$

Sales Mix

Biblio Files Company is making plans for its next fiscal year, and decides to sell two new types of bookshelves, Basic and Deluxe. The company has compiled the following estimates for the new product