Titleist is the worlds leading manufacturer of Golf Balls. The company produces several different branded types of
Question:
Titleist is the world’s leading manufacturer of Golf Balls. The company produces several different branded types of Golf Balls. Two of the most popular are the premium “Pro V1” and the standard “Velocity”. It takes the same amount of Direct Labour to produce both balls, about 50 cents per ball. The “Velocity” is a 2 piece ball and is comprised of the Core at a cost of 25 cents per ball and 20 cents for the Cover. The “Pro V1” is a 3 piece ball. It has an additional material added for greater distance and control. This is the Casing and it costs 15 cents per ball.
Titleist Golf Balls are never sold individually, but rather in two different types of packaging and in different quantities. Firstly, 3 Golf Balls are packaged together in a long box about the size of a toothpaste package, referred to as a “Sleeve”. Secondly, the Golf Balls are also sold in a larger cigar “Box” size of 12 (a dozen), where four pre-packaged “Sleeves” containing 3 balls each are simply inserted into the larger Box. The cost of the “Sleeve” packaging is 15 cents and the cost of the larger “Box” packaging is 50 cents.
Titleist Sales Price List by Product
A Sleeve of Velocity Golf Balls sells for $4.50 A Sleeve of Pro V1 Golf Balls for $9.90
A Box of Velocity Golf Balls sells for $16.00 A Box of Pro V1 Golf Balls sells for $38.00
Titleist expects to produce and sell 60,000,000 Velocity Golf Balls this year and 24,000,000 Pro V1 Golf Balls this year. The mould that imprints the dimples on the cover of the ball must be replaced every 200,000 impressions. The cost of each new mould is $8,000. Consider this a Variable Cost of Manufacturing Overhead, allocated to Products based upon Production levels.
Titleist signs contracts and commits to an annual Advertising Budget which must be spent in order to ensure targeted Sales have the best chance of being met. Titleist will spend $1,000,000 on Velocity and $5,000,000 on Pro V1.
Titleist pays its Salespeople a commission of 2% on each sale
REQUIRED
Using an Excel Spreadsheet or a Word Document, answer all the questions below. You must show ALL of your detailed calculations. Simply providing the answer without the detail as to how you arrived at your answer will result in a significantly lower mark. (Round answers to the nearest cent)
(i) Calculate the Contribution Margin per Unit for a “Sleeve” of Pro V1 Golf Balls and for a “Box” of Pro V1 Golf Balls.
(ii) Calculate the Contribution Margin Ratio for a “Sleeve” of Velocity Golf Balls and for a “Box” of Velocity Golf Balls.
(iii) The Marketing Department has advised you that senior Management wants to know the impact of cutting $500,000 in Advertising dollars, BUT the cut can only be made to ONE of the two brands. It is expected that this Advertising cut will decrease the Sales Volume of Pro V1 by 5% OR 20% of the Velocity Sales Volume. In order to maximize the Operating Income of the company, which brand should have its advertising budget cut by $500,000 assuming Titleist ONLY produces and sells “Sleeves” of Pro V1 and ONLY produces and sells “Boxes” of Velocity this year?
(iv) If in the following year the cost of a “Sleeve’s” packaging increases from 15 cents to 18 cents, which brand’s Contribution Margin per “Sleeve” is impacted the most? Pro V1 or Velocity? Assume Titleist exclusively produces and sells “Sleeves” of both brands the following year.
Introduction to Management Accounting
ISBN: 978-0133058789
16th edition
Authors: Charles Horngren, Gary Sundem, Jeff Schatzberg, Dave Burgsta