Question

Integrative Exercise Cost Behavior and Cost-Volume-Profit Analysis for Many Glacier Hotel Using the High-Low Method to Estimate Variable and Fixed Costs Located on Swiftcurrent Lake in Glacier National Park, Many Glacier Hotel was built in 1915 by the Great Northern Railway. In an effort to supplement its lodging revenue, the hotel decided in 20x1 to begin manufacturing and selling small wooden canoes decorated with symbols hand painted by Native Americans living near the park. Due to the great success of the canoes, the hotel began manufacturing and selling paddles as well in 20x3. Many hotel guests purchase a canoe and paddles for use in self-guided tours of Swiftcurrent Lake. Because production of the two products began in different years, the canoes and paddles are produced in separate production facilities and employ different laborers. Each canoe sells for $500, and each paddle sells for $50. A 20X3 fire destroyed the hotel's accounting records. However, a new system put into place before the 20X4 season provides the following aggregated data for the hotel's canoe and paddle manufacturing and marketing activities: Manufacturing Data: Number of Total Cance Canoes Manufacturing Year Manufactured Costs 20x9 250 $103,000 Number of Total Paddle Paddles Manufacturing Year Manufactured Costs 20x9 900 $38,500

Answer 1

1. a. Canoe product line :

Variable cost per unit	$ 300
Total fixed cost	$ 80,000

High: 400 units, Low: 240 units

Variable manufacturing cost per unit = ( 140,000 - 108,000) / ( 400 - 240) = $ 200

Variable marketing cost per unit = ( 60,000 - 44,000 ) / ( 400 - 240) = $ 100

Total variable cost per unit = $ 200 + $ 100 = $ 300.

b. Paddle product line:

Variable cost per unit	$ 40
Total fixed cost	$ 10,000

2. BE units = Total Fixed Cost / Contribution Margin per Unit

Contribution margin : Canoes = $ 500 - $ 300 = $ 200

BE units: Canoes = $ 80,000 / $ 200 = 400 units

Contribution margin : Paddles = $ 50 - $ 40 = $ 10

BE units : Paddles: $ 10,000 / $ 10 = 1,000 units.

Canoe BE units	400 canoes
Paddle BE units	1,000 paddles

3. Total fixed costs = $ 80,000 + $ 10,000 + $ 30,000 = $ 120,000.

Let the overall break-even quantity be Q.

Weighted average contribution margin = 200 x 300 / 1,500 Q + 10 x 1,200 / 1,500 Q = 48 Q

At break-even, Total Contribution Margin = Total Fixed Costs

or 48 Q = 120,000

or Q = 2,500 units.

Canoe BE units	500 canoes
Paddles BE units	2,000 paddles

4.a. All manufacturing costs are Production Costs. All marketing costs and customer hotline costs are Period Costs.

b. Marketing costs are further classified as Selling Expenses.Customer hotline costs would be further classified as General and Administrative Expenses.

5.

Canoe target income units	952 canoes
Paddle target income units	3,809 paddles

Revised contribution margin per unit for canoes = $ 500 - $ ( 200 x 1.05 + 100) = $ 190

Weighted average contribution margin = 190 x 0.20 + 10 x 0.80 = 46

Total fixed cost = $ 63,000 + $ 20,000 + $ 10,000 + $ 30,000 = $ 123,000.

Unit sales required to earn $ 96,000 = $ ( 123,000 + 96,000 ) / $ 46 = 4,761 units