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Sheet1

In this Project you will analyse managerial and costing information to improve the company's EBITDA. You will use what you have learned about cost behavior and apply activity-based costing and cost-volume-profit analysis to make recommendations about LGI’s operational productivity. Use Information you calculated in project 2 Tab 3 Profit Maximization has been populated in Cells A to H of Q 1. Assuming the company operates 12 months of the year convert the information from Project 2 to annual information for both Standard and Deluxe Boxes. 11022
Question 1
Profit Maximization Standard Boxes ( obtain from Project 2) 12
Quantity Boxes sold per month in millions Price Revenue VC /unit VC FC / per month (millions) Total Costs (FC+VC) Daily profit (revenue -all costs) Annual Revenue (millions) Annual VC (millions) Annual FC (millions) Annual Total Costs (millions) Annual Profit
5 $ 22.00 $ 110.00 $ 10.00 $ 50.00 $ 10.00 $ 60.00 $ 50.00 $ 1,320.00 $ 600.00 $ 120.00 $ 720.00 $ 600.00
5.5 $ 21.60 $ 118.80 $ 10.00 $ 55.00 $ 10.00 $ 65.00 $ 53.80 $ 1,425.60 $ 660.00 $ 120.00 $ 780.00 $ 645.60
6 $ 21.20 $ 127.20 $ 10.00 $ 60.00 $ 10.00 $ 70.00 $ 57.20 $ 1,526.40 $ 720.00 $ 120.00 $ 840.00 $ 686.40
6.5 $ 20.80 $ 135.20 $ 10.00 $ 65.00 $ 10.00 $ 75.00 $ 60.20 $ 1,622.40 $ 780.00 $ 120.00 $ 900.00 $ 722.40
7 $ 20.40 $ 142.80 $ 10.00 $ 70.00 $ 10.00 $ 80.00 $ 62.80 $ 1,713.60 $ 840.00 $ 120.00 $ 960.00 $ 753.60
7.5 $ 20.00 $ 150.00 $ 10.00 $ 75.00 $ 10.00 $ 85.00 $ 65.00 $ 1,800.00 $ 900.00 $ 120.00 $ 1,020.00 $ 780.00
8 $ 19.60 $ 156.80 $ 10.00 $ 80.00 $ 10.00 $ 90.00 $ 66.80 $ 1,881.60 $ 960.00 $ 120.00 $ 1,080.00 $ 801.60
8.5 $ 19.20 $ 163.20 $ 10.00 $ 85.00 $ 10.00 $ 95.00 $ 68.20 $ 1,958.40 $ 1,020.00 $ 120.00 $ 1,140.00 $ 818.40
9 $ 18.80 $ 169.20 $ 10.00 $ 90.00 $ 10.00 $ 100.00 $ 69.20 $ 2,030.40 $ 1,080.00 $ 120.00 $ 1,200.00 $ 830.40
9.5 $ 18.40 $ 174.80 $ 10.00 $ 95.00 $ 10.00 $ 105.00 $ 69.80 $ 2,097.60 $ 1,140.00 $ 120.00 $ 1,260.00 $ 837.60
10 $ 18.00 $ 180.00 $ 10.00 $ 100.00 $ 10.00 $ 110.00 $ 70.00 $ 2,160.00 $ 1,200.00 $ 120.00 $ 1,320.00 $ 840.00
10.5 $ 17.60 $ 184.80 $ 10.00 $ 105.00 $ 10.00 $ 115.00 $ 69.80 $ 2,217.60 $ 1,260.00 $ 120.00 $ 1,380.00 $ 837.60
11 $ 17.20 $ 189.20 $ 10.00 $ 110.00 $ 10.00 $ 120.00 $ 69.20 $ 2,270.40 $ 1,320.00 $ 120.00 $ 1,440.00 $ 830.40
11.5 $ 16.80 $ 193.20 $ 10.00 $ 115.00 $ 10.00 $ 125.00 $ 68.20 $ 2,318.40 $ 1,380.00 $ 120.00 $ 1,500.00 $ 818.40
12 $ 16.40 $ 196.80 $ 10.00 $ 120.00 $ 10.00 $ 130.00 $ 66.80 $ 2,361.60 $ 1,440.00 $ 120.00 $ 1,560.00 $ 801.60
12.5 $ 16.00 $ 200.00 $ 10.00 $ 125.00 $ 10.00 $ 135.00 $ 65.00 $ 2,400.00 $ 1,500.00 $ 120.00 $ 1,620.00 $ 780.00
13 $ 15.60 $ 202.80 $ 10.00 $ 130.00 $ 10.00 $ 140.00 $ 62.80 $ 2,433.60 $ 1,560.00 $ 120.00 $ 1,680.00 $ 753.60
13.5 $ 15.20 $ 205.20 $ 10.00 $ 135.00 $ 10.00 $ 145.00 $ 60.20 $ 2,462.40 $ 1,620.00 $ 120.00 $ 1,740.00 $ 722.40
14 $ 14.80 $ 207.20 $ 10.00 $ 140.00 $ 10.00 $ 150.00 $ 57.20 $ 2,486.40 $ 1,680.00 $ 120.00 $ 1,800.00 $ 686.40
$ 168.80 $ 105.00 $ 63.80 $ 2,025.60
Profit Maximization Deluxe Boxes 12
Deluxe boxes sold per month (millions) Price Revenue (price x volume) Variable Cost per standard box Variable Cost (cost per unit x volume) Fixed cost per month (millions) Total Cost (Fixed + Variable) Daily Profit (revenue - all costs) Annual Revenue (millions) Annual VC (millions) Annual FC (millions) Annual Total Costs (millions) Annual Profit (millions)
1 $ 30.00 $ 30.00 $ 10.00 $ 10.00 $ 10.00000 $ 20.0000 $ 10.00 $ 360.00 $ 120.00 $ 120.00 $ 240.00 $ 120.00
1.2 $ 29.50 $ 35.40 $ 10.00 $ 12.00 $ 10.00000 $ 22.0000 $ 13.40 $ 424.80 $ 144.00 $ 120.00 $ 264.00 $ 160.80
1.35 $ 29.00 $ 39.15 $ 10.00 $ 13.50 $ 10.00000 $ 23.5000 $ 15.65 $ 469.80 $ 162.00 $ 120.00 $ 282.00 $ 187.80
1.5 $ 28.50 $ 42.75 $ 10.00 $ 15.00 $ 10.00000 $ 25.0000 $ 17.75 $ 513.00 $ 180.00 $ 120.00 $ 300.00 $ 213.00
1.55 $ 28.00 $ 43.40 $ 10.00 $ 15.50 $ 10.00000 $ 25.5000 $ 17.90 $ 520.80 $ 186.00 $ 120.00 $ 306.00 $ 214.80
1.6 $ 27.50 $ 44.00 $ 10.00 $ 16.00 $ 10.00000 $ 26.0000 $ 18.00 $ 528.00 $ 192.00 $ 120.00 $ 312.00 $ 216.00
1.65 $ 27.00 $ 44.55 $ 10.00 $ 16.50 $ 10.00000 $ 26.5000 $ 18.05 $ 534.60 $ 198.00 $ 120.00 $ 318.00 $ 216.60
1.7 $ 26.50 $ 45.05 $ 10.00 $ 17.00 $ 10.00000 $ 27.0000 $ 18.05 $ 540.60 $ 204.00 $ 120.00 $ 324.00 $ 216.60
1.75 $ 26.00 $ 45.50 $ 10.00 $ 17.50 $ 10.00000 $ 27.5000 $ 18.00 $ 546.00 $ 210.00 $ 120.00 $ 330.00 $ 216.00
1.8 $ 25.50 $ 45.90 $ 10.00 $ 18.00 $ 10.00000 $ 28.0000 $ 17.90 $ 550.80 $ 216.00 $ 120.00 $ 336.00 $ 214.80
1.85 $ 25.00 $ 46.25 $ 10.00 $ 18.50 $ 10.00000 $ 28.5000 $ 17.75 $ 555.00 $ 222.00 $ 120.00 $ 342.00 $ 213.00
1.9 $ 24.50 $ 46.55 $ 10.00 $ 19.00 $ 10.00000 $ 29.0000 $ 17.55 $ 558.60 $ 228.00 $ 120.00 $ 348.00 $ 210.60
1.95 $ 24.00 $ 46.80 $ 10.00 $ 19.50 $ 10.00000 $ 29.5000 $ 17.30 $ 561.60 $ 234.00 $ 120.00 $ 354.00 $ 207.60
2 $ 23.50 $ 47.00 $ 10.00 $ 20.00 $ 10.00000 $ 30.0000 $ 17.00 $ 564.00 $ 240.00 $ 120.00 $ 360.00 $ 204.00
2.05 $ 23.00 $ 47.15 $ 10.00 $ 20.50 $ 10.00000 $ 30.5000 $ 16.65 $ 565.80 $ 246.00 $ 120.00 $ 366.00 $ 199.80
2.1 $ 22.50 $ 47.25 $ 10.00 $ 21.00 $ 10.00000 $ 31.0000 $ 16.25 $ 567.00 $ 252.00 $ 120.00 $ 372.00 $ 195.00
2.15 $ 22.00 $ 47.30 $ 10.00 $ 21.50 $ 10.00000 $ 31.5000 $ 15.80 $ 567.60 $ 258.00 $ 120.00 $ 378.00 $ 189.60
2.2 $ 21.50 $ 47.30 $ 10.00 $ 22.00 $ 10.00000 $ 32.0000 $ 15.30 $ 567.60 $ 264.00 $ 120.00 $ 384.00 $ 183.60
2.25 $ 21.00 $ 47.25 $ 10.00 $ 22.50 $ 10.00000 $ 32.5000 $ 14.75 $ 567.00 $ 270.00 $ 120.00 $ 390.00 $ 177.00
$ 44.13 $ 27.66 $ 16.48
Question 2
The Company currently operates by selling 9 Million Standard Boxes and 1.5 Million Deluxe Boxes per month. With environmental concerns over the use of the materials and techniques to make the Deluxe Boxes the company director is concerned over its longterm feasibility. The marketing manager is convinced that under the current cost allocation Deluxe boxes is the highest contributor to company gross profit. How much profit is made on each product ? Also calculate the Gross Profit percentage for each product. HINT Use the annual information calculated in Question 1 to complete Question 2. Complete the grey spaces 37.5
Standard Boxes Deluxe Boxes Total
Number Of Boxes (in Millions per month ) 9 1,5 10.5
Volume per year ( millions) 108 18 126
$ (in millions) $ (in millions) $ (in millions)
Revenue $ 2,030.40 $ 513.00 $ 2,543.40
Less: Variable Costs $ 1,080.00 $180 $ 1,260.00
Marginal Contribution $ 8.80 $ 13.50 $ 22.30
Less: Fixed Costs $ 120.00 $ 120.00 $ 240.00
Profit $ 830.40 $ 213.00 $ 1,043.40
Profit % 40.90% 41.50% 82.40%

Sheet2

Question 1
A new intern at the company believes that fixed cost based and allocated on a daily basis is incorrect and suggests allocating the Fixed Costs between Standard and Deluxe Boxes Based on the number of boxes sold. How much costs are allocated to each product based on the method suggested by the intern? To prove s/he point the intern also calculated the profit percentage. Complete the grey spaces
Standard Boxes Deluxe Boxes Total
Volumes (per Month) 9 1.5 10.5
Volumes per year ( millions) 108 18 126
Total Fixed Costs (Millions- from Tab1) 10.00 10.00 20.00
New Profit Millions Millions
Sales $ 2,030.40 $ 513.00
Less VC $ 1,080.00 $180
Contribution Margin $ 8.80 $ 13.50
Less Fixed Costs $ 120.00 $ 120.00
Operting Profit $ 830.40 $ 213.00
Profit % 40.90% 41.50%

Sheet3

Question 1
LGI's production managers recently attended a course at UMGC where they learned about ABC costing. They propose allocating the total fixed costs between Standard and Deluxe boxes based on this method . They collected information about the cost drivers and the break up of the total costs in Table 1 below. How much overhead would be allocated to Standard and Deluxe Boxes ( in total and per unit) using this method? Show all supporting calculations. Complete the grey spaces
Table 1
Manufacturing overhead $ Amount Cost driver Standard Box Deluxe Box Totals of Drivers Cost of Deluxe Boxes Cost of Standard Boxes Total Cost Check (must agree to Column B7:B14)
Depreciation $47.00 Square feet 7,000 80,000 87,000 $ 43.22 $ 3.78 $ 47.00
Maintenance $50.00 Direct Labour Hours 1,000 9,000 10,000 $ 45.00 $ 5.00 $ 50.00
Purchase order processing $9 Number of purchases orders 500 4,500 5,000 $ 8.10 $ 0.90 $ 9.00
Inspection $34 Number of employees 1,000 6000 7,000 $ 29.14 $ 4.86 $ 34.00
Indirect Materials $5.00 Labour Hours 1,000.00 9,000.00 10,000.00 $ 4.50 $ 0.50 $ 5.00
Supervision $7.00 #of inspections 200 800 1000 $ 5.60 $ 1.40 $ 7.00
Supplies $4.00 Units manufactured 1,000.00 9,000.00 10,000.00 $ 3.60 $ 0.40 $ 4.00
Total Allocated costs $156.00 N/A N/A N/A $ - 0
Number of boxes per year 108 18 N/A $ - 0
Allocated Cost per Box
Question 1
Deluxe Boxes Deluxe Boxes Total
Sales $ 2,030.40 $ 513.00
Less: Variable Costs $ 1,080.00 $180
Contribution $ 8.80 $ 13.50
Less: Fixed Costs $ 120.00 $ 120.00
Profit $ 830.40 $ 213.00
Profit % 40.90% 41.50%

Sheet4

Question 1
The sustainability manager is concerned about the long term sustainability implications of Deluxe boxes on the environment and suggest changing to sustainable materials for the production of a Sustainable Deluxe Box.
If the company switches to their current quantity of Deluxe Boxes sold to Sustainable Deluxe Boxes there will be some cost implications.
The Sustainable Deluxe Boxes could be made cheaper, and the sustianability manager believes that the company could bring down the selling price to $15 per box which would entice current Deluxe Box customers to accept the switch over. The new Sustainable Deluxe Boxes will attract 60% of total fixed costs calculated for the Deluxe Boxes under the ABC method. The number of boxes sold will not be affected by this new selling price, as the company will in future have to do marketing to sell more boxes at the lower price. Calculate the new Gross profit and profit percentage. Complete the grey spaces
Standard Boxes Sustainable Deluxe Total
Quantity 108.00 18.00 126.00
Sellin price per unit $ 18.80 15 $ 33.80
Sales $ 2,030.40 270.00 $ 2,300.40
VC $ 1,080.00 $180 20.00
Contribution $ 8.80 $ 13.50 $ 22.30
Fixed Costs $ 120.00 $ 120.00 $ 240.00
Profit $ 830.40 - 30.00 $ 800.40
GP % 40.90% -11.00%
Question 2
The manager is concerned about the massive reduction in profit from the Sustainable Deluxe Boxes but realizes that because of the change in materials, they will no longer be able to charge the price of $18 per box. The manager wants to achieve at least the same profit percentage for the deluxe boxes as they have on standard boxes. How much additional profit are they requiring? Complete the grey spaces.
Required profit 41.00% See Tab 3
Less: Existing profit -11.00% See Q 1 above
Equals: Difference in additional profit required 52.00%
Question 3
Work out the percentage that they should mark up on the costs to achieve the same profit % as for the standard boxes. Complete the grey spaces
%
Sales $ 2,030.40
Less Required GP% 41.00%
Equals: Mark up percentage on cost $ 2,029.99
Question 4
Use the percentage calculated in Question 3 to determine how much the company should charge per product to reach the same profit percentage as for the standard boxes . Assume the company can still sell the same quantity of the Sustainable Deluxe Boxes as for the Deluxe Boxes. Complete the grey spaces
Totals
Variable Costs $ 180.00
Fixed Cost $ 120.00
Total Costs $ 300.00
Sales $ 270.00
Units sold 18
Sales Price per unit $ 15.00
Question 5
Prove that your calculation in Q 4 is correct. Complete the grey boxes.
Proof: Total Per Unit
Sales $ 270.00 $ 15.00
Less VC $ 180.00 12
Contribution $ 8.00
Fixed Costs $ 120.00
Net Profit $ 90.00
Profit % 33.00%
Question 5
The marketing manger is concerned that the change could havea significant impact on sales as ciustomers may see the sustaiable boxes as an inferiror product for which they still have to pay only a little bit less than the orginal price of the Deluxe Boxes. How many boxes would the company have to sell to break even on the new Sustainabale Deluxe Boxes based on the new selling price? Complete the grey boxes.
$ Totals
Selling price $15
Less: Variable costs $ 180.00
Contribution $ 13.50
Fixed Costs $ 120.00
Breakeven Quantity - 0.73
BreakEven Value $ 8.89