Overview
The next step in planning for your new business is to analyze the cost behaviors and systems of your industry and conduct the relevant financial calculations to determine appropriate costing solutions. In this milestone assignment, you will conduct a break-even analysis to determine your target profits and the selling price you plan to use to achieve these profits for each product.
Prompt
Use information from Milestone One and the provided Milestone Two Market Research Data Appendix Word Document to conduct a cost-volume profit analysis. Complete the “Contribution Margin Analysis” and “Break-Even Analysis” tabs in the Project Workbook Spreadsheet that you used for completing the Milestone One assignment.
Specifically, you must address the following rubric criteria:
Contribution Margin. Determine your contribution margin per unit in the “Contribution Margin Analysis” tab.
Choose a sales price for each product.
Calculate the contribution margin for each product based on your sales price and the variable cost for that product. Show your work using calculations to the side of the table or using appropriate formulas in the table.
Break-Even Analysis. Use cost-volume-profit (CVP) analysis to determine your break-even points for achieving your target profits in the “Break-Even Analysis” tab.
Determine break-even units for the suggested target profits for each product. Show your work using calculations to the side of the table or using appropriate formulas in the table.
H
Milestone One – Cost Classification
INSTRUCTIONS:
Putting an X in the appropriate spot, classify the costs as: Direct Material, Direct Labor, Overhead, or Period Costs.
The Fixed and Variable cost classifications have been provided for you.
Item/Cost
Direct
Material
Direct
Labor
Overhead
Period Costs
Fixed
Variable
Salary – Collar maker
x
x
Salary – Leash maker
x
x
Salary – Harness maker
x
x
x
Salary – Receptionist
High-tensile strength nylon webbing
x
x
Polyester/nylon ribbons
x
x
Buckles made of cast hardware
x
x
Depreciation on sewing machines
x
x
Rent
x
x
Utilities and insurance
x
x
Scissors, thread, and cording
x
x
Price tags
x
x
Office supplies
x
Other business equipment
x
Loan payment
x
x
Salary to self
x
x
ACC202 – MANAGERIAL ACCOUNTING
H
Milestone One – Variable and Fixed Costs
Collars
Item
Variable Cost/Item
Item
High-tensile strength nylon webbing
Polyester/nylon ribbons
Buckles made of cast hardware
Price tags
$
$
$
$
4.00
3.00
2.00
0.10
Collar maker’s salary (monthly)
Depreciation on sewing machines
Rent
Utilities and insurance
Scissors, thread, and cording
Loan payment
Salary to self
Fixed Costs
Total Variable Costs per Collar
$
9.10
Total Fixed Costs
$
$
$
$
$
$
$
2,773.33
55.00
250.00
200.00
400.00
183.33
166.67
Leashes
Item
Variable Cost/Item
Item
High-tensile strength nylon webbing
Polyester/nylon ribbons
Buckles made of cast hardware
Price tags
$
$
$
$
6.00
4.50
1.50
0.10
Leash maker’s salary (monthly)
Depreciation on sewing machines
Rent
Utilities and insurance
Scissors, thread, and cording
Loan payment
Salary to self
$
$
$
$
$
$
$
Fixed Costs
2,773.33
55.00
250.00
200.00
400.00
183.33
166.67
Total Variable Costs per Leash
$
12.10
Total Fixed Costs
$
4,028.33
Harnesses
Item
Variable Cost/Item
Item
High-tensile strength nylon webbing
Polyester/nylon ribbons
Buckles made of cast hardware
Price tags
$
$
$
$
6.00
4.50
4.00
0.10
Harness maker’s salary
Depreciation on sewing machines
Rent
Utilities and insurance
Scissors, thread, and cording
Loan
Salary to self
$
$
$
$
$
$
$
Fixed Costs
2,946.67
55.00
250.00
200.00
400.00
183.33
166.67
Total Variable Costs per Harness $
14.60
Total Fixed Costs
$
4,201.67
ACC202 – MANAGERIAL ACCOUNTING
H
Milestone Two – Contribution Margin Analysis
COLLARS
LEASHES
Sales Price per Unit
Variable Cost per Unit
Contribution Margin
ACC202 – MANAGERIAL ACCOUNTING
HARNESSES
H
Milestone Two – Break-Even Analysis
COLLARS
LEASHES
HARNESSES
Sales Price
$
–
$
–
$
–
Fixed Costs
$
–
$
–
$
–
Contribution Margin
$
–
$
–
$
–
Break-Even Units (round up)
Target Profit
–
$
Break-Even Units (round up)
Target Profit
Break-Even Units (round up)
–
300.00
$
–
$
$
–
500.00
–
400.00
–
$
600.00
–
ACC202 – MANAGERIAL ACCOUNTING
500.00
–
$
650.00
–
H
Milestone Three – Statement of Cost of Goods Sold
Beginning Work in Process Inventory
Direct Materials:
Materials: Beginning
Add: Purchases for month of January
$
–
0
Materials available for use
Deduct: Ending materials
Materials Used
Direct Labor
Overhead
Total Costs
Deduct: Ending Work in Process Inventory
0
Cost of Goods Sold
ACC202 – MANAGERIAL ACCOUNTING
Milestone Three – Income Statement
Revenue:
Collars
Leashes
Harnesses
$
–
Total Revenue:
Cost of goods sold
Gross profit
$
$
–
Total Expenses
$
–
Net Income/Loss
$
–
Expenses:
General and administrative salaries
Office supplies
Other business equipment
$
ACC202 – MANAGERIAL ACCOUNTING
–
Milestone Three – Variance Analysis
Data for Variance Analysis:
Budgeted
(Standard)
Hours/Qty
Budgeted
(Standard)
Rate
Actual
Hours/Qty
Actual
Rate
Variance
Favorable/
Unfavorable
Labor
Materials
Variances for Collar Sales
Direct Labor Time Variance
(Actual Hours – Standard Hours) x Standard Rate
$
–
Direct Labor Rate Variance
(Actual Rate – Standard Rate) x Actual Hours
$
–
Direct Materials Quantity/Efficiency Variance
(Actual Quantity – Standard Quantity) x Standard Price
$
–
Direct Materials Price Variance
(Actual Price – Standard Price) x Actual Quantity
$
–
ACC202 – MANAGERIAL ACCOUNTING
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