Question

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

.

Total Total Total Machine Units Lumber Utilities Depreciation Produced Cost Cost Cost $135,000 135,000 13,000 shelves $143,000 26,000 shelves 286,000 52,000 shelves 572,000 65,000 shelves 715,000 $16,950 31,900 61,800 76,750 135,000 135,000

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.

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.

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 82,800 units during the year.

Income Statement - Cover-to-Cover

Cover-to-Cover Company Contribution Margin Income Statement For the Year Ended December 31, 20Y8
Sales		$414,000
Variable costs:
Manufacturing expense	$248,400
Selling expense	20,700
Administrative expense	62,100	(331,200)
Contribution margin		$82,800
Fixed costs:
Manufacturing expense	$5,000
Selling expense	4,000
Administrative expense	11,700	(20,700)
Operating income		$62,100

Income Statement - Biblio Files

Biblio Files Company Contribution Margin Income Statement For the Year Ended December 31, 20Y8
Sales		$414,000
Variable costs:
Manufacturing expense	$165,600
Selling expense	16,560
Administrative expense	66,240	(248,400)
Contribution margin		$165,600
Fixed costs:
Manufacturing expense	$85,500
Selling expense	8,000
Administrative expense	10,000	(103,500)
Operating income		$62,100

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 offerings.

Type of Bookshelf	Sales Price per Unit	Variable Cost per Unit
Basic	$5.00	$1.75
Deluxe	9.00	8.10

The company is interested in determining how many of each type of bookshelf would have to be sold in order to break even. If we think of the Basic and Deluxe products as components of one overall enterprise product called “Combined,” the unit contribution margin for the Combined product would be $2.31. Fixed costs for the upcoming year are estimated at $346,500. Recall that the totals of all the sales mix percents must be 100%. Determine the amounts to complete the following table.

Refer again to the income statements for Cover-to-Cover Company and Biblio Files Company on their respective Income Statement. Note that both companies have the same sales and net income. Answer questions (1) - (3) that follow, assuming that all data for the coming year is the same as the current year, except for the amount of sales.

1. If Cover-to-Cover Company wants to increase its profit by $30,000 in the coming year, what must their amount of sales be?
$

2. If Biblio Files Company wants to increase its profit by $30,000 in the coming year, what must their amount of sales be?
$

Answer 1

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Cover-to-Cover Company
High Low method
Variable cost=	(Highest activity cost- Lowest activity cost)/ (Highest activity units- Lowest activity units)
	Lumber Cost	Units			Utilities Cost	Units			Deprecation	Units
Highest units	715,000.00	65,000.00		Highest units	76,750.00	65,000.00		Highest units	135,000.00	65,000.00
Lowest units	143,000.00	13,000.00		Lowest units	16,950.00	13,000.00		Lowest units	135,000.00	13,000.00
Difference	572,000.00	52,000.00		Difference	59,800.00	52,000.00		Difference	-	52,000.00
Variable cost per unit	11.00			Variable cost per unit	1.15			Variable cost per unit	-
Fixed cost	Highest activity cost- (Highest units * Variable cost per unit)			Fixed cost	Highest activity cost- (Highest units * Variable cost per unit)			Fixed cost	Highest activity cost- (Highest units * Variable cost per unit)
Fixed cost	715000-(65000*11)			Fixed cost	76750-(65000*1.15)			Fixed cost	135000-(65000*0)
Fixed cost	-			Fixed cost	2,000.00			Fixed cost	135,000.00
So,				So,				So,
Variable cost per call is $ 11.				Variable cost per call is $ 1.15.				Variable cost per call is $ 0.
Fixed cost is $ 0.				Fixed cost is $ 2000.				Fixed cost is $ 135,000.
	Fixed Portion	Variable Portion
Lumber Cost	-	11.00
Utilities Cost	2,000.00	1.15
Deprecation	135,000.00	-

Biblio Files Company
High Low method
Variable cost=	(Highest activity cost- Lowest activity cost)/ (Highest activity units- Lowest activity units)
	Total Cost	Units
Highest units	88,750.00	5,775.00
Lowest units	6,250.00	275.00
Difference	82,500.00	5,500.00
Variable cost per unit	15.00
Fixed cost	Highest activity cost- (Highest units * Variable cost per unit)
Fixed cost	88750-(5775*15)
Fixed cost	2,125.00
So,
Variable cost per unit is $ 15.
Fixed cost is $ 2,125.

A	B	C	D=A*B	E=C+D
Units produced	Variable cost per unit	Fixed Portion	Variable Portion	Total cost
3500	15.00	2,125.00	52,500.00	54,625.00
4360	15.00	2,125.00	65,400.00	67,525.00
5775	15.00	2,125.00	86,625.00	88,750.00

	Cover-to-Cover	Biblio Files
Units sold	82,800.00	82,800.00		F
Net Sales	414,000.00	414,000.00		G
Sell price per unit	5.00	5.00		H=G/F
Contribution margin	82,800.00	165,600.00		I
Contribution margin per unit	1.00	2.00		J=I/F
Contribution margin ratio	20.00%	40.00%		K=I/G
Fixed costs	20,700.00	103,500.00		L
Breakeven (units)	20,700.00	51,750.00		M=L/J
Breakeven ($)	103,500.00	258,750.00		N=L/K
Biblio Files Company	Basic	Deluxe	Total
Sales Price	5.00	9.00		O
Variable Cost	1.75	8.10		P
Contribution margin per unit	3.25	0.90		Q=O-P
Combined Contribution margin per unit			2.31	R

Let sales mix be X and Y where X is the number of units sold of Basic and Y is the number of units sold of Deluxe.
So 3.25X+ 0.90Y/(X+Y)=	2.31
3.25X+ 0.90Y=	2.31(X+Y)
3.25X+ 0.90Y=	2.31X+2.31Y)
3.25X-2.31X=	2.31Y-0.90Y
0.94X=	1.41Y
X/Y	1.41/.94
X/Y	1.50
So X= 60%
Y= 40%

Biblio Files Company	Basic	Deluxe	Total
Sales Price	5.00	9.00		O
Variable Cost	1.75	8.10		P
Contribution margin per unit	3.25	0.90		Q=O-P
Weighted average Contribution margin per unit			2.31	R
Fixed costs			346,500.00	S
Breakeven units			150,000.00	T=S/R
Sales mix	60%	40%		U
Breakeven units	90,000.00	60,000.00	150,000.00	V=T*U
Breakeven $	450,000.00	540,000.00	990,000.00	W=V*O

1. If Cover-to-Cover Company wants to increase its profit by $30,000 in the coming year, what must their amount of sales be?
Increase in profit by	30,000.00	X
Contribution margin per unit	1.00	See J
Increase in sales units	30,000.00	Y=X/J
Existing sales units	82,800.00	See F
Sales units must be	112,800.00	Z=Y+F
Sell price per unit	5.00	See H
Sales value must be	564,000.00	AA=Z*H
2. If Biblio Files Company wants to increase its profit by $30,000 in the coming year, what must their amount of sales be?
Increase in profit by	30,000.00	X
Contribution margin per unit	2.00	See J
Increase in sales units	15,000.00	AA=X/J
Existing sales units	82,800.00	See F
Sales units must be	97,800.00	AB=AA+F
Sell price per unit	5.00	See H
Sales value must be	489,000.00	AC=AB*H