{"id":3761,"date":"2022-03-25T04:54:59","date_gmt":"2022-03-25T04:54:59","guid":{"rendered":"https:\/\/courses.lumenlearning.com\/wm-accountingformanagers\/?post_type=chapter&p=3761"},"modified":"2022-03-25T04:54:59","modified_gmt":"2022-03-25T04:54:59","slug":"module-8-assignment-cost-volume-profit-analysis","status":"web-only","type":"chapter","link":"https:\/\/courses.lumenlearning.com\/wm-accountingformanagers\/chapter\/module-8-assignment-cost-volume-profit-analysis\/","title":{"raw":"Module 8 Assignment: Cost Volume Profit Analysis","rendered":"Module 8 Assignment: Cost Volume Profit Analysis"},"content":{"raw":"This assignment is available for download as a Word Document<\/a>.\r\n\r\nRead the following scenario and complete the questions and tasks below.\r\n\r\n
\r\n\r\nMirabel Manufacturing is a small but growing company that manufactures and sells marine sonar equipment. They employee a national sales force and their primary customers are marine retailers and boat dealerships. The company has expanded over the last 5 years and Paul Mirabel, the founder and CEO has become concerned that he no longer has a clear picture of their cost structure. He calls his CFO, Mary Jane Montgomery in for a meeting.\r\n\r\n\u201cMary Jane, I am concerned that I am not current on our cost structure and how that is impacting our bottom line,\u201d Paul begins.\r\n\r\n\u201cWell, Paul, the company has grown considerably over the past 5 years, so I\u2019m not surprised that you feel a little disconnected with how things are going,\u201d Mary Jane replied. She continued \u201cIn fact, I\u2019ve been meaning to talk to you about a couple of big items such as increasing the sales commission to 15%. We\u2019ve lost two of our best account managers in the last 9 months. It seems like we are behind the curve paying only 12% on gross sales.\u201d\r\n\r\n\u201cWhat do you mean we are behind the curve,\u201d Paul replied angrily. \u201cWe have always been the leader in every aspect of our business.\u201d\r\n\r\n\u201cWell, that may have been the case in the past, Paul, but frankly we need to step up our compensation package to stay competitive,\u201d Mary Jane replied. She continued, \u201cAnd that\u2019s not everything. I met with Frank Jacobs from marketing and he said we need to have a bigger presence at the trade show in March. He told me he would need about $650,000 added to the marketing budget to support new marketing materials.\u201d\r\n\r\n\u201cCome on, Mary Jane, how can we do that when we are going to have to increase commission?\u201d He continued, \u201cI spoke with Dan Clark in production and he indicated that we have two pieces of equipment that need to be replaced by the end of the quarter and that\u2019s going to set us back almost $1.2 million.\u201d\r\n\r\nMary Jane shook her head. \u201cPaul, I hate to bring this up but while we are talking costs, but Bob in purchasing stopped by the office and dropped off some revised cost information \u2013 it looks like several of our suppliers are talking about significant price increases by the end of the year.\u201d\r\n\r\nPaul slumped in his chair. \u201cThis is a mess, Mary Jane. Increasing commissions, new equipment, materials price increases and marketing expenses all at once. Even if Frank Mallow is correct that we should see a 10% increase in sales for the coming year, I just don\u2019t see how we can make this work. We have to maintain enough profit to keep the shareholders happy and I can\u2019t sleep when we dip below that $2 million margin of safety.\u201d\r\n\r\nMary Jane gathered up her papers. \u201cBefore you get too distressed, let me put together some figures and let\u2019s see what this looks like on paper. I\u2019ll get back to you by the end of the week. In the meantime, stay positive, we\u2019ll find the best solution.\u201d\r\n\r\nThe following income and cost data for Mirabel is provided:\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n
Mirabel Manufacturing<\/strong><\/td>\r\n<\/tr>\r\n
Budgeted Income Statement<\/em><\/td>\r\n<\/tr>\r\n
For the Year Ending December 31<\/em><\/td>\r\n<\/tr>\r\n
Sales<\/td>\r\n<\/td>\r\n<\/td>\r\n\u00a0$\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 36,750,000<\/td>\r\n<\/tr>\r\n
Cost of goods sold:<\/td>\r\n<\/td>\r\n<\/td>\r\n<\/td>\r\n<\/tr>\r\n
<\/td>\r\nVariable<\/td>\r\n\u00a0$\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 13,300,000<\/td>\r\n<\/td>\r\n<\/tr>\r\n
<\/td>\r\nFixed<\/td>\r\n\u00a0$\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 9,300,000<\/td>\r\n<\/td>\r\n<\/tr>\r\n
Gross Margin<\/td>\r\n<\/td>\r\n<\/td>\r\n$\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a014,150,000<\/td>\r\n<\/tr>\r\n
Selling & Administrative<\/td>\r\n<\/td>\r\n<\/tr>\r\n
<\/td>\r\nCommissions<\/td>\r\n\u00a0$\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 4,410,000<\/td>\r\n<\/tr>\r\n
<\/td>\r\nFixed Marketing Expenses<\/td>\r\n\u00a0$\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 1,350,000<\/td>\r\n<\/tr>\r\n
<\/td>\r\nFixed Administrative<\/td>\r\n\u00a0$\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 6,000,000<\/td>\r\n<\/tr>\r\n
Net Operating Income<\/td>\r\n<\/td>\r\n\u00a0$\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 2,390,000<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n \r\n\r\n\r\n\r\n\r\n\r\n\r\n
<\/td>\r\nModel 101<\/td>\r\nModel 201<\/td>\r\nModel 301<\/td>\r\n<\/tr>\r\n
Normal Annual Sales Volume<\/td>\r\n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 16,000<\/td>\r\n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 19,000<\/td>\r\n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 11,000<\/td>\r\n<\/tr>\r\n
Unit Selling Price<\/td>\r\n\u00a0$\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 650<\/td>\r\n\u00a0$\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 750<\/td>\r\n\u00a0$\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 1,100<\/td>\r\n<\/tr>\r\n
Variable expense per unit<\/td>\r\n\u00a0$\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 250<\/td>\r\n\u00a0$\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 200<\/td>\r\n\u00a0$\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 500<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n \r\n\r\n(Note: Each of the following questions is independent of the others)\r\n
    \r\n \t
  1. What is Mirabel\u2019s over-all break-even point in sales dollars?<\/li>\r\n \t
  2. Assume that sales revenue remains constant, what is the impact on break-even and the margin of safety if Paul takes Mary Jane\u2019s advice and increases sales commission to 15%?<\/li>\r\n \t
  3. If Mirabel purchases the new equipment for $1,200,000, it will increase fixed costs by 10% but will decrease the variable cost per unit for all 3 models by 5%. What will Mirabel\u2019s new break-even point be?<\/li>\r\n \t
  4. If Mirabel invests the additional $650,000 in fixed marketing expenses, sales of the Model 301 are expected to increase by 8%. What is the break-even and margin of safety under these circumstances?<\/li>\r\n \t
  5. If the projection is that sales will increase by 10% in the coming year, can the company afford to also increase commission from 12% to 15%? Why or why not.<\/li>\r\n \t
  6. Assume that sales volume remains fixed but there is a 5% increase in variable expenses (materials cost) for the Model 101 and 301, and a 10% increase in variable expenses for Model 201. What is the new break-even?<\/li>\r\n<\/ol>\r\n

    Report:<\/h3>\r\nPrepare a report from Mary Jane to Don explaining how these changes will affect Mirabel\u2019s overall cost structure. For those changes that are controllable, make a recommendation considering the uncontrollable cost changes. Be certain to consider not only the company\u2019s break-even point, but also the desired margin of safety.","rendered":"

    This assignment is available for download as a Word Document<\/a>.<\/p>\n

    Read the following scenario and complete the questions and tasks below.<\/p>\n

    \n

    Mirabel Manufacturing is a small but growing company that manufactures and sells marine sonar equipment. They employee a national sales force and their primary customers are marine retailers and boat dealerships. The company has expanded over the last 5 years and Paul Mirabel, the founder and CEO has become concerned that he no longer has a clear picture of their cost structure. He calls his CFO, Mary Jane Montgomery in for a meeting.<\/p>\n

    \u201cMary Jane, I am concerned that I am not current on our cost structure and how that is impacting our bottom line,\u201d Paul begins.<\/p>\n

    \u201cWell, Paul, the company has grown considerably over the past 5 years, so I\u2019m not surprised that you feel a little disconnected with how things are going,\u201d Mary Jane replied. She continued \u201cIn fact, I\u2019ve been meaning to talk to you about a couple of big items such as increasing the sales commission to 15%. We\u2019ve lost two of our best account managers in the last 9 months. It seems like we are behind the curve paying only 12% on gross sales.\u201d<\/p>\n

    \u201cWhat do you mean we are behind the curve,\u201d Paul replied angrily. \u201cWe have always been the leader in every aspect of our business.\u201d<\/p>\n

    \u201cWell, that may have been the case in the past, Paul, but frankly we need to step up our compensation package to stay competitive,\u201d Mary Jane replied. She continued, \u201cAnd that\u2019s not everything. I met with Frank Jacobs from marketing and he said we need to have a bigger presence at the trade show in March. He told me he would need about $650,000 added to the marketing budget to support new marketing materials.\u201d<\/p>\n

    \u201cCome on, Mary Jane, how can we do that when we are going to have to increase commission?\u201d He continued, \u201cI spoke with Dan Clark in production and he indicated that we have two pieces of equipment that need to be replaced by the end of the quarter and that\u2019s going to set us back almost $1.2 million.\u201d<\/p>\n

    Mary Jane shook her head. \u201cPaul, I hate to bring this up but while we are talking costs, but Bob in purchasing stopped by the office and dropped off some revised cost information \u2013 it looks like several of our suppliers are talking about significant price increases by the end of the year.\u201d<\/p>\n

    Paul slumped in his chair. \u201cThis is a mess, Mary Jane. Increasing commissions, new equipment, materials price increases and marketing expenses all at once. Even if Frank Mallow is correct that we should see a 10% increase in sales for the coming year, I just don\u2019t see how we can make this work. We have to maintain enough profit to keep the shareholders happy and I can\u2019t sleep when we dip below that $2 million margin of safety.\u201d<\/p>\n

    Mary Jane gathered up her papers. \u201cBefore you get too distressed, let me put together some figures and let\u2019s see what this looks like on paper. I\u2019ll get back to you by the end of the week. In the meantime, stay positive, we\u2019ll find the best solution.\u201d<\/p>\n

    The following income and cost data for Mirabel is provided:<\/p>\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n
    Mirabel Manufacturing<\/strong><\/td>\n<\/tr>\n
    Budgeted Income Statement<\/em><\/td>\n<\/tr>\n
    For the Year Ending December 31<\/em><\/td>\n<\/tr>\n
    Sales<\/td>\n<\/td>\n<\/td>\n\u00a0$\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 36,750,000<\/td>\n<\/tr>\n
    Cost of goods sold:<\/td>\n<\/td>\n<\/td>\n<\/td>\n<\/tr>\n
    <\/td>\nVariable<\/td>\n\u00a0$\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 13,300,000<\/td>\n<\/td>\n<\/tr>\n
    <\/td>\nFixed<\/td>\n\u00a0$\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 9,300,000<\/td>\n<\/td>\n<\/tr>\n
    Gross Margin<\/td>\n<\/td>\n<\/td>\n$\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a014,150,000<\/td>\n<\/tr>\n
    Selling & Administrative<\/td>\n<\/td>\n<\/tr>\n
    <\/td>\nCommissions<\/td>\n\u00a0$\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 4,410,000<\/td>\n<\/tr>\n
    <\/td>\nFixed Marketing Expenses<\/td>\n\u00a0$\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 1,350,000<\/td>\n<\/tr>\n
    <\/td>\nFixed Administrative<\/td>\n\u00a0$\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 6,000,000<\/td>\n<\/tr>\n
    Net Operating Income<\/td>\n<\/td>\n\u00a0$\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 2,390,000<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

     <\/p>\n\n\n\n\n\n\n
    <\/td>\nModel 101<\/td>\nModel 201<\/td>\nModel 301<\/td>\n<\/tr>\n
    Normal Annual Sales Volume<\/td>\n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 16,000<\/td>\n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 19,000<\/td>\n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 11,000<\/td>\n<\/tr>\n
    Unit Selling Price<\/td>\n\u00a0$\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 650<\/td>\n\u00a0$\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 750<\/td>\n\u00a0$\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 1,100<\/td>\n<\/tr>\n
    Variable expense per unit<\/td>\n\u00a0$\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 250<\/td>\n\u00a0$\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 200<\/td>\n\u00a0$\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 500<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

     <\/p>\n

    (Note: Each of the following questions is independent of the others)<\/p>\n

      \n
    1. What is Mirabel\u2019s over-all break-even point in sales dollars?<\/li>\n
    2. Assume that sales revenue remains constant, what is the impact on break-even and the margin of safety if Paul takes Mary Jane\u2019s advice and increases sales commission to 15%?<\/li>\n
    3. If Mirabel purchases the new equipment for $1,200,000, it will increase fixed costs by 10% but will decrease the variable cost per unit for all 3 models by 5%. What will Mirabel\u2019s new break-even point be?<\/li>\n
    4. If Mirabel invests the additional $650,000 in fixed marketing expenses, sales of the Model 301 are expected to increase by 8%. What is the break-even and margin of safety under these circumstances?<\/li>\n
    5. If the projection is that sales will increase by 10% in the coming year, can the company afford to also increase commission from 12% to 15%? Why or why not.<\/li>\n
    6. Assume that sales volume remains fixed but there is a 5% increase in variable expenses (materials cost) for the Model 101 and 301, and a 10% increase in variable expenses for Model 201. What is the new break-even?<\/li>\n<\/ol>\n

      Report:<\/h3>\n

      Prepare a report from Mary Jane to Don explaining how these changes will affect Mirabel\u2019s overall cost structure. For those changes that are controllable, make a recommendation considering the uncontrollable cost changes. Be certain to consider not only the company\u2019s break-even point, but also the desired margin of safety.<\/p>\n","protected":false},"author":428269,"menu_order":8,"template":"","meta":{"_candela_citation":"[]","CANDELA_OUTCOMES_GUID":"","pb_show_title":"on","pb_short_title":"","pb_subtitle":"","pb_authors":[],"pb_section_license":""},"chapter-type":[],"contributor":[],"license":[],"class_list":["post-3761","chapter","type-chapter","status-web-only","hentry"],"part":3728,"_links":{"self":[{"href":"https:\/\/courses.lumenlearning.com\/wm-accountingformanagers\/wp-json\/pressbooks\/v2\/chapters\/3761","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/courses.lumenlearning.com\/wm-accountingformanagers\/wp-json\/pressbooks\/v2\/chapters"}],"about":[{"href":"https:\/\/courses.lumenlearning.com\/wm-accountingformanagers\/wp-json\/wp\/v2\/types\/chapter"}],"author":[{"embeddable":true,"href":"https:\/\/courses.lumenlearning.com\/wm-accountingformanagers\/wp-json\/wp\/v2\/users\/428269"}],"version-history":[{"count":1,"href":"https:\/\/courses.lumenlearning.com\/wm-accountingformanagers\/wp-json\/pressbooks\/v2\/chapters\/3761\/revisions"}],"predecessor-version":[{"id":3762,"href":"https:\/\/courses.lumenlearning.com\/wm-accountingformanagers\/wp-json\/pressbooks\/v2\/chapters\/3761\/revisions\/3762"}],"part":[{"href":"https:\/\/courses.lumenlearning.com\/wm-accountingformanagers\/wp-json\/pressbooks\/v2\/parts\/3728"}],"metadata":[{"href":"https:\/\/courses.lumenlearning.com\/wm-accountingformanagers\/wp-json\/pressbooks\/v2\/chapters\/3761\/metadata\/"}],"wp:attachment":[{"href":"https:\/\/courses.lumenlearning.com\/wm-accountingformanagers\/wp-json\/wp\/v2\/media?parent=3761"}],"wp:term":[{"taxonomy":"chapter-type","embeddable":true,"href":"https:\/\/courses.lumenlearning.com\/wm-accountingformanagers\/wp-json\/pressbooks\/v2\/chapter-type?post=3761"},{"taxonomy":"contributor","embeddable":true,"href":"https:\/\/courses.lumenlearning.com\/wm-accountingformanagers\/wp-json\/wp\/v2\/contributor?post=3761"},{"taxonomy":"license","embeddable":true,"href":"https:\/\/courses.lumenlearning.com\/wm-accountingformanagers\/wp-json\/wp\/v2\/license?post=3761"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}