Question

PLEASE ANSWER CONTRIBUTION MARGIN, SALES MIX, TARGET PROFIT! THANK YOU

THIS IS MY 4TH TIME POSTING THIS QUESTION PLEASE FINISH CORRECTLY!

Cost Behavior

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	Total	Total	Total Machine
Produced	Lumber Cost	Utilities Cost	Depreciation Cost
15,000 shelves	$180,000	$18,250	$135,000
30,000 shelves	360,000	35,500	135,000
60,000 shelves	720,000	70,000	135,000
75,000 shelves	900,000	87,250	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.

Cost	Fixed Portion of Cost	Variable Portion of Cost (per Unit)
Lumber	0	12
Utilities	1000	1.15
Depreciation	135000	0

HIGH LOWSection

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.

Month	Number of Units Produced	Total Cost
January	4,360	$65,600
February	225	6,250
March	1,000	15,000
April	5,475	111,250
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
3034	14.35

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 Costs
3,500	53259
4,360	65600
5,475	81600

Contribution Margin

Review the contribution margin income statements for Cover-to-Cover Company and Biblio Files Company on their respective Income Statements panels. Complete the following table from the data provided in the income statements. Each company sold 84,800 units during the year.

	Cover-to-Cover Company	Biblio Files Company
Contribution margin ratio (percent)
Unit contribution margin
Break-even sales (units)
Break-even sales (dollars)

Income statement cover-to cover

Cover-to-Cover Company

Contribution Margin Income Statement

For the Year Ended December 31, 20Y7

1	Sales			$424,000.00
2	Variable costs:
3	Manufacturing expense		$212,000.00
4	Selling expense		21,200.00
5	Administrative expense		63,600.00	296,800.00
6	Contribution margin			$127,200.00
7	Fixed Costs:
8	Manufacturing expense		$5,000.00
9	Selling expense		4,000.00
10	Administrative expense		54,600.00	63,600.00
11	Income from operations			$63,600.00

Income Statement - Biblio Flies

Biblio Files Company

Contribution Margin Income Statement

For the Year Ended December 31, 20Y7

1	Sales			$424,000.00
2	Variable costs:
3	Manufacturing expense		$169,600.00
4	Selling expense		16,960.00
5	Administrative expense		33,920.00	220,480.00
6	Contribution margin			$203,520.00
7	Fixed Costs:
8	Manufacturing expense		$121,920.00
9	Selling expense		8,000.00
10	Administrative expense		10,000.00	139,920.00
11	Income from operations			$63,600.00

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 $346,962. Recall that the totals of all the sales mix percents must be 100%. Determine the amounts to complete the following table.

Type of Bookshelf	Percent of Sales Mix	Break-Even Sales in Units	Break-Even Sales in Dollars
Basic
Deluxe

Target Profit

Refer again to the income statements for Cover-to-Cover Company and Biblio Files Company on their respective Income Statement panels. 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 $40,000 in the coming year, what must their amount of sales be?

2. If Biblio Files Company wants to increase its profit by $40,000 in the coming year, what must their amount of sales be?

3. What would explain the difference between your answers for (1) and (2)?

The companies have goals that are not in the relevant range.

Cover-to-Cover Company’s contribution margin ratio is lower, meaning that it’s more efficient in its operations.

Biblio Files Company has a higher contribution margin ratio, and so more of each sales dollar is available to cover fixed costs and provide income from operations.

The answers are not different; each company has the same required sales amount for the coming year to achieve the desired target profit.

Answer 1

Target profit

1. For cover to cover to increase their profit by 40,000, The profit would be 63,600 + 40,000 = 103,600

Fixed Costs = 63,600

Therefore, total contribution would be Fixed Costs + Desired profit = 103,600 + 63,600 = 167,200

Per unit contribution for Cover to cover is 1.5

Therefore number of units to be sold = 167,200/1.5 = 111,467 units

Sales = 111,467 x 5 = 557,335

2. For Biblio files to increase their profits by 40,000, total profit would be 103,600

Fixed Costs = 139,920

Total contribution = Fixed Costs + Desired profit = 139,920 + 103,600 = 243,520

Unit contribution = 2.4

Number of units to be sold = 243,520/2.4 = 101,467

Sales = 101,467 x 5 = 507,333

3. The difference is due to the fact that the unit contribution margin of Biblio files is greater than the unit margin of cover to cover. This is despite the fact that the fixed costs are greater for biblio files in comparison to cover to cover.