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 12,000 shelves $144,000 $14,800 $130,000 24,000 shelves 288,000 28,600 130,000 48,000 shelves 576,000 56,200 130,000 60,000 shelves 720,000 70,000 130,000 1. Determine whether the costs in the table are variable, fixed, mixed, or none of these. Lumber Variable Cost Utilities Mixed Cost Depreciation Fixed Cost 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 1de21302101f041_4 $fill in the blank 1de21302101f041_5 Utilities fill in the blank 1de21302101f041_6 fill in the blank 1de21302101f041_7 Depreciation fill in the blank 1de21302101f041_8 fill in the blank 1de21302101f041_9
Cost-Volume-Profit Analysis
Cost Volume Profit (CVP) analysis is a cost accounting method that analyses the effect of fluctuating cost and volume on the operating profit. Also known as break-even analysis, CVP determines the break-even point for varying volumes of sales and cost structures. This information helps the managers make economic decisions on a short-term basis. CVP analysis is based on many assumptions. Sales price, variable costs, and fixed costs per unit are assumed to be constant. The analysis also assumes that all units produced are sold and costs get impacted due to changes in activities. All costs incurred by the company like administrative, manufacturing, and selling costs are identified as either fixed or variable.
Marginal Costing
Marginal cost is defined as the change in the total cost which takes place when one additional unit of a product is manufactured. The marginal cost is influenced only by the variations which generally occur in the variable costs because the fixed costs remain the same irrespective of the output produced. The concept of marginal cost is used for product pricing when the customers want the lowest possible price for a certain number of orders. There is no accounting entry for marginal cost and it is only used by the management for taking effective decisions.
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 Cost |
| 12,000 shelves | $144,000 | $14,800 | $130,000 |
| 24,000 shelves | 288,000 | 28,600 | 130,000 |
| 48,000 shelves | 576,000 | 56,200 | 130,000 |
| 60,000 shelves | 720,000 | 70,000 | 130,000 |
1. Determine whether the costs in the table are variable, fixed, mixed, or none of these.
| Lumber | Variable Cost |
| Utilities | Mixed Cost |
| Depreciation | Fixed Cost |
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 1de21302101f041_4 | $fill in the blank 1de21302101f041_5 |
| Utilities | fill in the blank 1de21302101f041_6 | fill in the blank 1de21302101f041_7 |
| Depreciation | fill in the blank 1de21302101f041_8 | fill in the blank 1de21302101f041_9 |
High-Low
Biblio Files Company is the chief competitor of Cover-to-Cover Company in the bookshelf business. Biblio Files is analyzing its
| Units Produced | Total Cost | ||
| January | 4,360 | units | $65,600 |
| February | 275 | 6,250 | |
| March | 1,000 | 15,000 | |
| April | 6,775 | 103,750 | |
| May | 1,750 | 32,500 | |
| June | 3,015 | 48,000 |
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 68301efd8ff1f86_1 | $fill in the blank 68301efd8ff1f86_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 68301efd8ff1f86_3 |
| 4,360 | fill in the blank 68301efd8ff1f86_4 |
| 6,775 | fill in the blank 68301efd8ff1f86_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.
c
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 83,800 units during the year.
| Cover-to-Cover Company |
Biblio Files Company |
|
| Contribution margin ratio (percent) | fill in the blank 55c150fdef87f91_1% | fill in the blank 55c150fdef87f91_2% |
| Unit contribution margin | $fill in the blank 55c150fdef87f91_3 | $fill in the blank 55c150fdef87f91_4 |
| Break-even sales (units) | fill in the blank 55c150fdef87f91_5 | fill in the blank 55c150fdef87f91_6 |
| Break-even sales (dollars) | $fill in the blank 55c150fdef87f91_7 | $fill in the blank 55c150fdef87f91_8 |
Trending now
This is a popular solution!
Step by step
Solved in 3 steps
