Cover-to-Cover Company is a manufacturer of shelving for books. The company has
ID: 2574770 • Letter: C
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 Units Produced 7,000 shelves 14,000 shelves 28,000 shelves 35.000 shelves Total Machine Depreciation Cost $125,000 $125,000 $125,000 $125,000 Lumber Cost Utilities Cost $84,000 $168,000 $336,000 $420,000 $9,050 $17,100 $33,200 $41,250 1. Determine whether the costs in the table are yariable, fixed, mixed, or none of these Variable Cost Fixed Cost Mixed Cost None of these Lumber Utilities Depreciation Points: 3/3Explanation / Answer
Cover to cover 1 Correct 2 Correct High-Low 1 Variable cost per unit=Change in total cost/Change in number of units produced Take highest and lowest level of activity for computation Take April and February for our calculations Variable cost per unit=(56250-6250)/(5250-250)=$10 per unit Fixed cost=Total cost-(Variable cost per unit*number of units produced) Take April and February for our calculations Fixed cost=56250-($10*5250)=6250-($10*250)=3750 Total fixed Cost Variable cost per unit $3,750 10 2 Total cost=(Variable cost per unit*Number of units produced)+Fixed cost Number of units produced Total costs 3500 (3500*10)+3750=38750 4360 (4360*10)+3750=47350 5250 (5250*10)+3750=56250 3 Correct Contribution Margin Contribution margin ratio (%)=(Contribution margin/ sales)*100 Cover-to-cover company=(84800/424000)*100=20% Biblio files company=(203520/424000)*100=48% Unit contribution margin, Cover-to-cover company, Variable cost per unit=Total variable cost/Number of units sold=339200/84800=4 Sales price per unit=Sales/Number of units sold=424000/84800=5 Unit contribution margin=Sales price per unit-Variable cost per unit=5-4=1 Biblio files company Variable cost per unit=Total variable cost/Number of units sold=220480/84800=2.6 Sales price per unit=Sales/Number of units sold=424000/84800=5 Unit contribution margin=Sales price per unit-Variable cost per unit=5-2.6=2.4 Break-even sales in units=Fixed cost/Unit contribution margin Cover-to-cover company=21200/1=21200 units Biblio files company=139920/2.4=58300 units Break-even sales in $=Fixed cost/Contribution margin ratio(%) Cover-to-cover company=21200/20%=$106000 Biblio files company=139920/20%=$699600 Cover-to- cover company Biblio files company Contribution margin ratio (%) 20 48 Unit contribution margin 1 2.4 Break-even sales in units 21200 58300 Break-even sales in $ 106000 699600 Target profit Target sales in $=(Fixed cost+Desired profit)/ contribution margin ratio 1 Cover-to-cover=(21200+40000)/20%=$306000 2 Biblio-files company=(139920+40000)/48%=$374833 3 Biblio-files company has a higher contribution margin ratio and so more of each sales $ is available to cover fixed cost and provide income from operations