Question 1: Lancer Audio produces a high-end DVD player that sells for $1,250. Total operating expenses for July were as follows:
UNITS PRODUCED AND SOLD 140
Component cost $ 67,000
Supplies $1680
Assembly Labor $23500
Rent $2200
Supervisor Salary $5500
Electricity $250
Telephones $180
Gas $200
Shipping $1540
Advertising $2500
Administrative Cost $14500
Total $119050
Required:
A. Use account analysis to determine fixed cost per month and variable cost per DVD player.
B. Project total cost for August assuming production and sales of 160 units.
C. What is the contribution margin per DVD player?
D. Estimate total profit assuming production and sales of 160 units.
E. Lancer Audio is considering an order for 100 DVD players, to be produced in the next 10 months, from a customer in Canada. The selling price will be $900 per unit (well under the normal selling price). However, the Lancer Audio brand name unit will not be attached to the product. What is the impact on the company profit associated with this order?
Question 2: High low, break even. Lancer Audio produces a high-end DVD player that sells for 1250. Total operating expenses for the past 12 months are as follows:
Units produced and sold Cost
August 125 112,670
September 145 121,990
October 150 129,500
November 160 131,500
December 165 139,700
January 140 117,400
February 145 125,600
March 135 115,400
April 130 116,140
May 135 119,220
June 145 121,700
July 140 119,050
Required:
A. Use the high-low method to estimate fixed and variable cost.
B. Based on these estimates, calculate the break-even level of sales in units.
C. Calculate the margin of safety for the coming august assuming estimated sales of 160 units.
D. Estimate total profit assuming production and sales of 160 units.
E. Comment on the limitations of high-low method in estimating costs for Lancer audio.
Question 3: Account analysis, High-low, contribution margin. Information on occupancy and costs at the New Hotel for April, May, and June are indicated below:
April May June
Occupancy 1500 1650 1800
Day Manager salary 4200 4200 4200
Night manager salary 3700 3700 3700
Cleaning Staff 15300 15600 15900
Depreciation 12000 12000 12000
Food and beverages 4600 5300 5800
Total 39800 40800 41600
Required:
A. Calculate the fixed costs per month and the variable cost per occupied room using account analysis for April.
B. Calculate the fixed costs per month and the variable cost per occupied room using the high-low method.
C. Average room rates are $110 per night. What is the contribution margin per occupied room? In answering this question Use your variable cost estimate from part b.