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.

Units	Total	Total	Total Machine
Produced	Lumber Cost	Utilities Cost	Depreciation Cost
4,000 shelves	$48,000	$5,600	$130,000
8,000 shelves	$96,000	$10,200	$130,000
16,000 shelves	$192,000	$19,400	$130,000
20,000 shelves	$240,000	$24,000	$130,000

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
Utilities
Depreciation

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 Units Produced) +

Fixed Cost. Complete the following table.

Total Fixed Cost	Variable Cost per Unit
$	$

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	$
4,360	$
5,475	$

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)

Cover-to-Cover Company

Contribution Margin Income Statement

For the Year Ended December 31

1	Sales			$424,000.00
2	Variable costs:
3	Manufacturing		$233,200.00
4	Selling		21,200.00
5	Administrative		63,600.00	318,000.00
6	Contribution margin			106,000.00
7	Fixed Costs:
8	Manufacturing		$5,000.00
9	Selling		4,000.00
10	Administrative		33,400.00	42,400.00
11	Income from operations			$63,600.00

Biblio Files Company

Contribution Margin Income Statement

For the Year Ended December 31

1	Sales			$424,000.00
2	Variable costs:
3	Manufacturing		$169,600.00
4	Selling		16,960.00
5	Administrative		67,840.00	254,400.00
6	Contribution margin			169,600.00
7	Fixed Costs:
8	Manufacturing		$88,000.00
9	Selling		8,000.00
10	Administrative		10,000.00	106,000.00
11	Income from operations			$63,600.00

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	%		$

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. If required, round answers to the nearest dollar.

1. If Cover-to-Cover Company wants to increase its profit by $30,000 in the coming year, what must their amount of sales be? $

2. If Biblio Files Company wants to increase its profit by $30,000 in the coming year, what must their amount of sales be? $

Answer 1

1. Determine whether the costs in the table are variable, fixed, mixed, or none of these.
	Variable	Fixed Cost	Mixed cost	None of this
Lumber	_/	X	X	X
Utilities	X	X	_/	X
Depreciation	X	_/	X	X

2. For each cost, determine the fixed portion of the cost and per unit variable cost
Cost	Fixed Portion of cost	Variable portion of cost (Per Unit)
Lumber	Nil	$12.00
Utilities	$1,000	$1.15
Depreciation	130000	Nil

1. From the data provided above, 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 Units Produced) + Fixed Cost. Complete the table below.
	Units	Total cost
Maximum Units produced	5475	111250
Minimum Units produced	225	6250
Difference	5250	105000
Variable cost per unit		20
Computation of Fixed Costs
Cost of 5,475 units	111250
Less Variable cost @ $20 per unit	109500
Fixed costs	1750

2. With your Total Fixed Cost and Variable Cost per Unit from the High-Low Method, calculate the total cost for the following values of N (Number of Units Produced).
Units Produced	Fixed cost	Variable cost	Total Cost
3500	1750	70000	71750
4360	1750	87200	88950
5475	1750	109500	111250