# Mendel Paper Company

Topics: Contribution margin, Variable cost, Management accounting Pages: 6 (807 words) Published: July 28, 2014
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Case 2B (Mendel Paper Company)
Tara McKnight
BUS630: Managerial Accounting
Prof Moustafa Ahmed
July 14, 2014

Mendel Paper Company
Introduction
The paper will talk about the Mendel Paper Company’s concern in regards to their four basic paper product lines. It will show the cost and price data for the next fiscal quarter, plus showing the contribution margins per unit and the revisions. The paper will include the break-even point for sales mix along with the margin of safety for the estimated sales volume of the original estimates and the revised estimates as well. Lastly, it will address Herbert’s concern about the variable cost of the place mats. Original Estimated Contribution Margins – (1)

Computer Paper has 6 units per hour and \$9.00 variable overhead per hour; Napkins has 10 units per hour and \$6.00 variable over per hour; Place mats has 5 units per hour and \$12.00 variable overhead per hour; and Poster Board has 4 units per hour and \$8.00 variable overhead per hour. Here is the break-down of everything: Comp Paper NapkinsPlace MatsPoster BoardTotal

Volume 30000 120000 45000 80000
Selling price 14 7 12 8.5 Material cost 6 4.5 3.6 2.5 Units per hour 6 10 5 4 Variable overheads 9 6 12 8 Variable O/H per unit 1.5 0.6 2.4 2 Total Sales 420000 840000 540000 680000 2480000 Material cost 180000 540000 162000 200000 Variable overheads 45000 72000 108000 60000 To get the variable overhead per unit is to divide the variable overheads by the units per hour. To get the Total Sales of each item is to multiply the volume and the selling price like for the computer paper: 3,000 x 14 = 420,000. To get the Material cost, have to multiply the volume and the material cost of each item and like for the computer paper: 3,000 x 6 = 180,000. Lastly, to get the total Variable overheads, would have to multiply the Variable Overhead per unit by the volume like for the computer paper: 1.5 x 3,000 = 45,000. For the Grand Total Sales is to add all the Total Sales of each item: \$420,000 + \$840,000 + \$540,000 + \$680,000 = \$2,480,000. In order to get the Contribution Margin, for an example for the computer paper: Total Sales = 420,000 – Material cost = 180,000 – Variable overheads = 45,000 (total) = \$195,000. So for the Contribution Margin: Computer Paper is \$195,000; Napkins is \$228,000; Place Mats is \$270,000; and Poster Board is \$320,000 and the grand total of the contribution margin is \$1,013,000. To get the Contribution Margin per unit, take the Contribution Margin and divide that by the volume number: Computer paper - \$195,000/30,000 is \$6.50 per unit; Napkins - \$228,000/ 120,000 is \$1.90 per unit; Place Mats - \$270,000/45,000 is \$6.00 per unit; and Poster Board - \$320,000/80,000 is \$4.00 per unit. Contribution Margin \$195,000 \$228,000 \$270,000 \$320,000 \$1,013,000 CM per unit \$6.50 \$1.90 \$6.00 \$4.00

Revised Estimated Contribution Margins – (2)
This part will show the revised estimated contribution margins. Comp Paper NapkinsPlace MatsPoster BoardTotal
Volume 35000 120000 45000 80000
Selling price 14 7 12 8.5 Material cost 7 4.5 4 2.5 Units per hour 6 10 5 4 Variable overheads 9 6 12 8 Variable O/H per unit 1.5 0.6 2.4 2 Total Sales 490000 840000 540000 680000 2550000 Material cost 245000 540000 180000 200000 Variable...

References: Managerial accounting: Decision making for the service and manufacturing sectors. (2012). San Diego, CA: Bridgepoint Education.

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