Question

The CEO's next question is, "What level of output would be required to maximize our profit on the MiniZ?" You have calculated the variable cost per unit for different levels of production. From market research, you have a schedule of prices for these levels. The information for MiniZ is summarized in the table below:

Number of Units	Variable Cost per Unit ($)	Sale Price per Unit ($)
200	60,000	70,000
250	54,000	66,000
300	48,000	64,000
350	46,000	59,000
400	45,000	52,000

A recommendation on output could affect everyone in the company, from management to sales, to the floor manager and assembly line workers! You don't want to get this one wrong so you take some extra time to proof your calculations.

Question 4: Based on profit-maximization analysis, what level of output of MiniZ should you recommend to the CEO?

Before starting your calculations, review materials on maximization output.

Submit your Profit-Maximization Output Report and Calculations to the dropbox below. Submit a spreadsheet showing your calculations in Excel and provide a narrative analysis in Word. Your narrative analysis should summarize the results of your analysis and make recommendations for the benefit of the company.

Your CEO has also asked you to prepare a production cost budget for the MiniY for May 20X8. The actual costs in April 20X8 were as follows:

MiniY: Production Cost Budget
April 20X8
Production–Units of MiniY	3,000
Components cost (variable)	24,000,000
Labor cost (variable)	13,500,000
Rent (fixed)	6,000,000
Depreciation (fixed)	6,000,000
Other (fixed)	2,000,000
Total	$51,500,000

For the month of May, the number of MiniY produced will increase to 3,200, reflecting an anticipated sales increase related to a new marketing campaign.

Question 5: Using the above information, prepare a budget for MiniY for May 20X8, stating the total cost. Use a spreadsheet to display your data and calculations.

Before starting your calculations, review materials on integrating accounting and financial information.

Submit your Production Cost Budget Report and Calculations to the dropbox below. Submit a spreadsheet showing your calculations in Excel and provide a narrative analysis in Word. Your narrative analysis should summarize the results of your analysis and make recommendations for the benefit of the company.

IPS operates a factory, which produces the MiniY and the MiniX. During September 20X8, the factory produced 3200 units of MiniY and 3000 units of MiniX. The joint cost related to the operation was $3,000,000. MiniX sells for $27,100 per unit and MiniY sells for $25,000 per unit. Allocate the joint costs using the relative sales values of MiniY and MiniX.

Question 6: With the costs that you calculate, what is the profit or loss associated with MiniY? NOTE:Assume that the variable and fixed costs mentioned in Question 5 are also applicable to Question 6 when calculating the profit or loss for MiniY. The costs for this question will be the total of the cost calculated in the above MiniY: Production Cost Budget plus the share of costs of the $3,000,000 (from the paragraph above) allocated to MiniY.

Submit your Profit or Loss Report and Calculations to the dropbox below. Submit a spreadsheet showing your calculations in Excel and provide a narrative analysis in Word. Your narrative analysis should summarize the results of your analysis and make recommendations for the benefit of the company.

Answer 1

Question 4:

Formula sheet

A	B	C	D	E	F	G	H	I	J	K	L	M	N
2
3		The level of output to maximize the profit is the level at which the contribution margin is highest.
4		Contribution margin per unit is the amount left to cover the fixed cost. Higher the contribution margin per unit means higher profit.
5		Contribution margin per unit =Selling Price per unit - Variable cost per unit
6
7		Number of Units	Variable Cost per Unit ($)	Sale Price per Unit ($)	Contribution margin per unit
8		200	60000	70000	=E8-D8
9		250	54000	66000	=E9-D9
10		300	48000	64000	=E10-D10
11		350	46000	59000	=E11-D11
12		400	45000	52000	=E12-D12
13
14		Since contribution margin per unit is highest at the level of 300 units.
15
16		Therefore level of output to maximize the profit is 300.
17