Demonstrate the application of the accounting concepts related to Cost Behavior
ID: 2497756 • Letter: D
Question
Demonstrate the application of the accounting concepts related to Cost Behavior and Cost –Volume-Profit interactions.
- Apply the Cost-Volume-Profit relationship to determine target profits
- Calculate the Required Sales Mix to break even
- Calculate the Variable and Fixed Costs in a Mixed Cost scenario
- Determine Production Budgets based upon the Sales Projection
Section 1: Board-Gamez customizes standard board games to depict places and events for the happy couple. These are then provided to the guests at the wedding reception. Board-Gamez has the following historical information and is going to use the High – Low method to determine its pricing schedule.
Using the following data, determine what Board-Gamez must charge for a wedding with 500 guests in order to show a profit of $1,200.
# Persons $ Costs
200 $1,700
700 $5,200
380 $3,040
900 $6,850
425 $ 3500
Section 2: Board-Gamez sells 3 different Board Games:
- MoneyMountain (MM)
- Up-Down (UD)
- CheckBalance (CB)
Last year Board-Gamez sold 36,000 MM games, 63,000 UD games, and 81,000 CB games.
- MM sells for $22 with a variable cost of $8
- UD sells for $28 with a variable cost of $6
- CB sells for $35 with a variable cost of $11
Fixed Costs for Board-Gamez are $3,894,562.
The company anticipates that the sales mix proportions will remain the same. For the next year, how many board games of each title must Board-Gamez sell to break even?
Section 3: Board-Boomerz manufactures retro board games. The company is going through its annual budgeting process. Using the following data, determine the $ Amount that must be budgeted for Direct Materials, Direct Labor, and Factory Overhead. How much will Board-Boomerz spend to meet the Production Budget?
Projected Sales: 1,250,000 games
Inventory Buffer Required: 100,000
Finished Goods Inventory: 68,000
DM Inventory Buffer Required: 70,000 parts
DM Current Inventory: 65,000 parts
DM = 7 parts / game
DM$ = $2.25 / part
DL = 20 minutes per part
DL$ = $21.75 / hour
Factory Overhead is Allocated at $1.10 per game
Explanation / Answer
Section 1: Board-Gamez customizes standard board games to depict places and events for the happy couple. These are then provided to the guests at the wedding reception. Board-Gamez has the following historical information and is going to use the High – Low method to determine its pricing schedule.
Using the following data, determine what Board-Gamez must charge for a wedding with 500 guests in order to show a profit of $1,200.
# Persons $ Costs
200 $1,700
700 $5,200
380 $3,040
900 $6,850
425 $ 3500
High 900 $6,850
Low 200 $1,700
Difference 700 $5,150
============
Variable cost per person $7.36
Fixed Cost
Total cost of 900 persons $6,850
Less: Variable cost $6,624
Fixed Cost $226
======
Cost of party with 500 guests = $226 + $7.36 x 500
= $226 + $3,680
= $3,906
Cost of the party $3906
Profit desired $1,200
Price to be charged $5,106
Note: - Section 2 and 3 may please be submitted as separate questions.
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