Assignment Case 2B Mendel Paper Company

Topics: Variable cost, Costs, Management accounting Pages: 5 (293 words) Published: November 17, 2014


Week 1 assignment
Managerial Accounting
BUS 630

Week 1 assignment
1. From all original estimates given, prepare estimated contribution margins by product line for the next fiscal quarter. Also, show the contribution margins per unit. Product Line
Sales Volume
Price
Variable Cost
Contribution
Margin/Unit
Ratio
Comp. Paper
30,000
$14.00
$6.00
$8.00
57%
$8.00*30,000 = $240,000 CM
Napkins
120,000
$ 7.00
$4.50
$2.50
36%
$2.50*120,000 = $300,000 CM
Place Mats
45,000
$12.00
$3.60
$8.40
70%
$8.40 * 45,000 = $378,000 CM
Poster Board
80,000
$ 8.50
$2.50
$6.00
71%
$6.00 * 80,000 = $480,000 CM
Total
275,000

Sales Proportions
CM/Product
Weighed CM
Computer Paper
11% *
$8.00 =
$0.88
Napkins
44% *
$2.50 =
$1.10
Place Mats
16% *
$8.40 =
$1.34
Poster Board
29% *
$6.00 =
$1.74
Total
100%

$5.06 weighted CM

Total Fixed Costs = $420,000+$118,000 = 538,000
Total Units = $538,000/$5.06 = 106,324 Break Even

Product Lines
Sales Mix %
Total Units
# of Products
Unit CM
CM
Comp. Papers
11%
106,324
11,696
$8.00
$93,568
Napkins
44%
106,325
46,783
$2.50
$116,956
Place Mats
16%
106324
17,012
$8.40
$142,899
Poster Board
29%
106324
30,834
$6.00
$185,003

2. Prepare contribution margins as in part (1) with all revisions included. Product Line
Sales Volume
Price
Variable Cost
Contribution
Margin/Unit
Ratio
Comp. Paper
35,000
$14.00
$7.00
$7.00
50%
Napkins
120,000
$ 7.00
$4.50
$2.50
36%
Place Mats
45,000
$12.00
$4.00
$8.00
67%
Poster Board
80,000
$ 8.50
$2.50
$6.00
71%
Total
280,000

Sales Proportions
CM/Product
Weighed CM
Computer Paper
13% *
$7.00 =
$0.91
Napkins
44% *
$2.50 =
$1.10
Place Mats
16% *
$8.00 =
$1.28
Poster Board
29% *
$6.00 =
$1.74
Total
100%

$5.03 weighted CM

$538,000/$5.03 = $106,958 Break Even

3. For the original estimates, compute each of the following: (a) Break-even point for the given sales mix.
Total Costs / Weighted CM
$538,000/$5.06 = 106,324 Break Even
(b) Margin of safety for the estimated sales volume.
275,000 – 106,324 = 168,676
168,000/275000 = .61 = 61%
4. For the revised estimates, compute each of the following: (a) Break-even point for the given sales mix.
538,000/$5.03 = 106,958 Break Even
(b) Margin of safety for the estimated sales volume.
280,000 – 106958 = 173,042
5. Comment on Herbert's concern about the variable cost of the place mats. Place mats contribution margin (CM) is the second highest of the four products (at $142,899) and has the highest individual contribution margin per unit of the four products ($8.40). Variable costs for place mats is $3.60 rendering a $8.40 CM per unit; if the variable costs were to go up to $5.00 the CM per unit would still be $7.00 per unit ($315,000). These would be a difference of $63,000 dollars ($378,000 – $315,000 = $63,000). Herbert’s concerns about the increasing variable costs of place mats at this time are unfounded.
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