complete excel
bbrend
Project3ExcelWorkbook_2242.xlsxTab 1 Lumpsum Analysis
| Revised on 1/29/2024 | ||||||||||||
| In Project 3 you will analyze 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. Step 1: Use the information you calculated in Project 2 Tab 3 Profit Maximization to populate has Columns C to H in Question 1. Step 2: Assume the company operates for 12 months of the year convert the information you populated in Columns C to H to annual information and populate Columns I to M for both the Standard and Deluxe Boxes. Step 3: Assume for this project that the only variable costs in this company are materials and labor. All other overhead costs will be assumed to be fixed. Note: The Total Fixed Cost of 156 is supposed to be constant for the production of total boxes including Standard Box and Deluxe Box on Tabs 1, 2, and 3. On Tab 1, the total fixed costs of 156 are allocated based on a lump sum method (arbitrarily using a monthly allocation basis). On Tab 2, the total fixed costs of 156 are allocated based on the sales volume (the number of boxes sold). On Tab 3, the total fixed costs of 156 are allocated based on the cost drivers. | ||||||||||||
| Question 1 | Annual information ( for 12 Months) | |||||||||||
| Standard 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) | Monthly 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 | |||||
| 5.5 | $ 21.60 | |||||||||||
| 6 | $ 21.20 | |||||||||||
| 6.5 | $ 20.80 | |||||||||||
| 7 | $ 20.40 | |||||||||||
| 7.5 | $ 20.00 | |||||||||||
| 8 | $ 19.60 | |||||||||||
| 8.5 | $ 19.20 | |||||||||||
| 9 | $ 18.80 | |||||||||||
| 9.5 | $ 18.40 | |||||||||||
| 10 | $ 18.00 | |||||||||||
| 10.5 | $ 17.60 | |||||||||||
| 11 | $ 17.20 | |||||||||||
| 11.5 | $ 16.80 | |||||||||||
| 12 | $ 16.40 | |||||||||||
| 12.5 | $ 16.00 | |||||||||||
| 13 | $ 15.60 | |||||||||||
| 13.5 | $ 15.20 | |||||||||||
| 14 | $ 14.80 | |||||||||||
| Deluxe Boxes Profit Maximization ( Columns C to H obtain from Project 2) | Annual information ( for 12 Months) | |||||||||||
| Deluxe boxes sold per month (millions) | Price | Revenue (price x volume) | Variable Cost per Deluxe box | Variable Cost (cost per unit x volume) | Fixed cost per month (millions) | Total Cost (Fixed + Variable) | Monthly 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 | $ 20.00 | $ 20.00 | $ 3.00 | $ 23.00 | $ 7.00 | |||||
| 1.2 | $ 29.50 | $ 35.40 | ||||||||||
| 1.35 | $ 29.00 | $ 39.15 | ||||||||||
| 1.5 | $ 28.50 | $ 42.75 | ||||||||||
| 1.55 | $ 28.00 | $ 43.40 | ||||||||||
| 1.6 | $ 27.50 | $ 44.00 | ||||||||||
| 1.65 | $ 27.00 | $ 44.55 | ||||||||||
| 1.7 | $ 26.50 | $ 45.05 | ||||||||||
| 1.75 | $ 26.00 | $ 45.50 | ||||||||||
| 1.8 | $ 25.50 | $ 45.90 | ||||||||||
| 1.85 | $ 25.00 | $ 46.25 | ||||||||||
| 1.9 | $ 24.50 | $ 46.55 | ||||||||||
| 1.95 | $ 24.00 | $ 46.80 | ||||||||||
| 2 | $ 23.50 | $ 47.00 | ||||||||||
| 2.05 | $ 23.00 | $ 47.15 | ||||||||||
| 2.1 | $ 22.50 | $ 47.25 | ||||||||||
| 2.15 | $ 22.00 | $ 47.30 | ||||||||||
| 2.2 | $ 21.50 | $ 47.30 | ||||||||||
| 2.25 | $ 21.00 | $ 47.25 | ||||||||||
| Question 2 | ||||||||||||
| The Company currently operates by selling 9 Million Standard Boxes and 1.5 Million Deluxe Boxes per month. The CEO is convinced that under the current cost allocation which allocates fixed costs on a lump sum method (arbitrarily using a monthly allocation basis) , Deluxe boxes is not contributing much to company profit and with recent threats from environmental groups thinks that they should consider to no longer produce Deluxe Boxes. Required (place answers in the in the Grey Spaces provided) 1) Calculate how much profit each product makes? 2) Calculate the Profit percentage (based on sales)for each product. HINT Use the annual information calculated in Question 1 to complete Question 2 | ||||||||||||
| Standard Boxes | Deluxe Boxes | Total | ||||||||||
| Number Of Boxes (in Millions per month ) | ||||||||||||
| Volume per year ( millions) | ||||||||||||
| $ (in millions) | $ (in millions) | $ (in millions) | ||||||||||
| Revenue | ||||||||||||
| Less: Variable Costs | ||||||||||||
| Equals: Contribution Margin | ||||||||||||
| Less: Fixed Costs | ||||||||||||
| Equals: Operating Profit | ||||||||||||
| Contribution Margin Ratio % | ||||||||||||
| Operating Profit % (based on revenue) |
Tab 2 Sales Volume Analysis
| Question 1 | |||
| A new intern thinks that the profit for Deluxe Boxes are higher than those calculated using the lump sum method (as in Tab1). The intern suggests calculating the profits using an allocation method for fixed costs based on sales volume( the number of boxes sold) to split the Fixed Costs between the Standard and Deluxe Boxes. Required: (Complete the grey spaces): 1) First calculate the percentage portion each product has of the total sales volume 1) How much fixed costs are allocated to each product based on the sales volume method suggested by the intern? 2) Also calculate the new operating profit percentage (based on sales) for each product. | |||
| Standard Boxes | Deluxe Boxes | Total | |
| Volumes (per Month) | 9 | 1.5 | 10.5 |
| Volumes per year ( millions) | 108 | 18 | 126 |
| Calculate the portion of Sales Volume (percentage sales volume) | |||
| Calculate how much fixed costs are allocated to each product. | |||
| New Profit | Standard Boxes ($Millions) | Deluxe Boxes ($Millions) | Total Boxes($ Millions) |
| Revenue | |||
| Less VC | |||
| Contribution Margin | |||
| Less Fixed Costs | |||
| Equals: Operating Profit | |||
| Operating Profit % (based on Revenue) | |||
Tab 3 ABC Analysis
| Question 1 | ||||||||
| LGI's production managers think that the profit on Deluxe Boxes are much lower than the Intern suggested after recently attending 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 (millions) | Cost driver | Standard Box | Deluxe Box | Totals of Drivers | Cost for Standard Boxes | Cost of Deluxe Boxes | Total Cost Check (must agree to Column B7:B14) |
| Depreciation | $47.00 | Square feet | 7,000 | 80,000 | ||||
| Maintenance | $50.00 | Direct Labor Hours | 1,000 | 9,000 | ||||
| Purchase order processing | $9 | Number of purchases orders | 500 | 4,500 | ||||
| Inspection | $34 | Number of employees | 1,000 | 6000 | ||||
| Indirect Materials | $5.00 | Labor Hours | 1,000 | 9,000 | ||||
| Supervision | $7.00 | #of inspections | 200 | 800 | ||||
| Supplies | $4.00 | Units manufactured | 1,000 | 9,000 | ||||
| Total Allocated costs | $156.00 | |||||||
| Number of boxes per year | 108 | 18 | ||||||
| Allocated Cost per Box | ||||||||
| Question 1 | ||||||||
| Standard Boxes | Deluxe Boxes | Total | ||||||
| Revenue | ||||||||
| Subtract: Variable Costs | ||||||||
| Equals: Contribution | ||||||||
| Subtract: Fixed Costs | ||||||||
| Equals: Operating Profit | ||||||||
| Operating Profit % (based on Revenue) |
Tab 4 CVP Analysis
| Question 1 | |||
| The sustainability manager is concerned about the long term sustainability implications of Deluxe Boxes on the environment and suggests changing to sustainable materials for the production of a Sustainable Deluxe Box. If the company switches the current quantity of Deluxe Boxes sold, to Sustainable Deluxe Boxes, there will be some cost implications. 1) The Sustainable Deluxe Boxes could be made cheaper, and the sustainability manager believes that the company could sell the Sustainable Deluxe Boxes for $23 per box and end up making substantially higher profit than they ever did on the Deluxe Boxes. Based on knowledge of price elasticity of demand s/he/they suggest that it may in time even result in much higher sales volumes. The marketing manager believes that a lower selling price will also entice current Deluxe Box customers to accept the switch over to the Sustainable Deluxe Box. 2) The new Sustainable Deluxe Boxes will still attract 60% of the fixed costs allocated to the old Deluxe Box under the ABC method used in tab 3. 3) The number of boxes sold will not currently be affected by this new selling price, as this is a very select group of customers for LGI. 4) The Standard Box costs and revenue will remain the same as that calculated under the ABC method 5) In order to help overall profit, the variable costs per sustainable Deluxe box will be reduced to $11 per box vice the original $20 per box. Required (complete the grey spaces) 1) Determine the profit and profit percentage for the Standard and Sustainable Deluxe Boxes | |||
| Standard Boxes | Sustainable Deluxe Boxes | Total | |
| Quantity | 108.00 | 18.00 | 126.00 |
| Selling price per unit | $ 18.80 | $ 23.00 | |
| Revenue | |||
| Subtract: Variable Costs | |||
| Equals: Contribution Margin | |||
| Subtract: Fixed Costs | |||
| Equals: Operating Profit | |||
| Operating Profit % (based on revenue) | |||
| Contribution Margin % | |||
| Question 2 | |||
| The CEO is not convinced and still thinks that no form of a Deluxe Box, sustainable or not should be produced. The CEO indicates that consideration of the production of a Sustainable Deluxe Boxes will only be considered if it can achieve at least the same operating profit percentage for the Sustainable Deluxe Boxes as the operating profit percentage indicated under the ABC costing method for Standard Boxes (See Tab 3) . Required (Complete the grey spaces). 1) How much additional operating profit (in percentage) will be required from the Sustainable Deluxe Boxes to meet the same percentage as the Standard Boxes are generating, given the percentage that can currently be achieved on Sustainable Deluxe Boxes | |||
| Using Operating Profit % | Using Gross Profit % | ||
| Required profit | See Question 1 | ||
| Subtract: Existing profit | See Q 1 above | ||
| Equals: Difference in additional profit required | |||
| Question 3 | |||
| Required: Work out the percentage that the company should mark up on the costs of Sustainable Deluxe Boxes to achieve the same profit % as for the Standard boxes. (Complete the grey spaces) | |||
| Using Operating Profit % | Using Gross Profit % | ||
| Revenue % | 100% | ||
| Subtract: Required Operating Profit | |||
| Equals: Cost % | |||
| Question 4 | |||
| Assume the company can still sell the same quantity of the Sustainable Deluxe Boxes as for the Deluxe Boxes Required (Complete the grey spaces) Use the percentage calculated in Question 3 to determine at which price the company should sell the Sustainable Deluxe Boxes to reach the same profit percentage as for the Standard Boxes. | |||
| Using Contribution Margin % | |||
| Total ($) | Total ($) | ||
| Variable Costs | |||
| Plus : Fixed Costs | |||
| Equals: Total Costs | |||
| Determine Revenue | |||
| Units sold (per year) | |||
| Sales Price per unit | |||
| Question 5 | |||
| Required: Prove that your calculation in Q 4 is correct. Complete the grey boxes. | |||
| Using Contribution Margin % | |||
| Proof: | Total ($) | Total ($) | |
| Revenue | |||
| Subtract: Variable Costs | |||
| Equals: Contribution Margin | |||
| Subtract: Fixed Costs | |||
| Operating Profit | |||
| Operating Profit % | |||
| Question 6 | |||
| The marketing manger is concerned that the change could have a significant impact on sales as customers may see the sustainable boxes as an inferior product for which they still have to pay only a little bit less than the original price of the Deluxe Boxes. How many boxes would the company have to sell to break even on the new Sustainable Deluxe Boxes based on the new selling price? Complete the grey boxes. | |||
| $ Per unit Sustainable Deluxe Boxes | Using Gross Profit % | ||
| Selling price | |||
| Less: Variable costs | |||
| Unit Contribution Magin | |||
| Fixed Costs | |||
| Breakeven Quantity | |||
| Break-even Value | |||
