ACCT 602 SJU Variable Cost Analysis for Windward Questions

-1Name: _________________________Read the case and follow instructions to complete the assignment.
Windward manufactures one product. The table below displays the weekly production costs. The
managerial accounting team has noticed that output costs varied considerably from week to
week.
Week
1
2
3
Output
Units
800
1000
1200
Direct
Direct Indirect Indirect
Factory
Other
Materials Labor Labor Materials Electricity Insurance Overhead
$600 $1,000
$360
$600
$230
$250
$620
750
1250
400
600
250
250
720
900
1500
440
600
270
250
820
The unit selling price of the product is $8.00 and the sales force earns a 10% commission for
each unit sold. Other administrative and selling expenses are fixed at $1,562 per week.
Windward does not carry inventory and, therefore, the number of units produced is equal to the
number of units sold. Income information for three weeks is as follows:
Sales
Cost of Goods Sold
Gross Margin
$
$
$
Other Expenses
Net Income
$
$
Week 1
Week 2
Week 3
6,400 $
8,000 $
9,600
3,660 $
4,220 $
4,780
2,740 $
3,780 $
4,820
2,202 $
538 $
2,362 $
1,418 $
2,522
2,298
Notice that cost of goods sold (COGS) per unit changes depending on output volume.
At 800 units sold, COGS per unit is $4.58.
At 1,000 units sold, COGS per unit is $4.22.
At 1,200 units sold, COGS per unit is $3.98.
Observing that COGS per unit declined as production volume increased, the accountants
conducted a cost analysis. The cost analysis was used to support pricing decisions at Windward.
An average production volume over the three weeks was used to determine the cost of
production, which was $6.58 per unit. The per-unit cost was also assumed to be the break-even
cost, which was used to create guidelines for the sales force.
-2Instructions:
1. Complete the highlighted items in the Excel Template, following the directions provided in
the worksheet. To earn points for this question, Excel formulas must be used to compute your
answers.
2. Use the amounts you computed in the Excel Template to complete items (a) through (h):
a) The variable manufacturing cost per unit for this product is ________
b) The total variable cost per unit for this product is ________
c) The total fixed manufacturing cost for this product is ________
d) The total fixed cost for this product is ________
e) The total manufacturing cost when 1,000 units are produced is ________
f) The total cost when 1,000 units are produced is ________
g) The manufacturing cost per unit when 1,000 units are produced is ________
h) The total cost per unit when 1,000 units are produced is ________
Answer each of the following questions. Show your computations and formulas directly
under each question.
3. How many units does Windward need to sell to break even? Show the formula to compute
break-even and show all your computations.
4. Assume the office manager received a call from a customer who wanted to purchase 100
units of product (no sales commission on this order). If the break-even point has already been
achieved by the sales team, what is the per-unit profit contributed by the sale of these
additional 100 units? Show your computations and explain your answer.
5. Suppose a loyal customer requested to place a special order to buy 100 units at $5.50 per
unit. This is a one-time only order, Windward has the capacity to fill this order, and by filling
the order no other regular order will go unfilled. There is no sales commission on this special
order. Assume the break-even point has already been met.
a) What would be the per-unit profit or loss associated with this order? Show your
computations.
b) Is there an opportunity cost associated with accepting this order? Explain.
c) Would you fill this order if you were the manager? Explain why or why not.
6. What did you learn about relevant costs for decision making from completing this case?
Week
1
2
3
Units of
Output
800
1000
1200
Direct
Direct Indirect Indirect
Factory
Other
Materials Labor
Labor Materials Electricity Insurance Overhead
$600 $1,000
$360
$600
$230
$250
$620
750
1250
400
600
250
250
720
900
1500
440
600
270
250
820
Enter F, V, or M
Instructions:
The purpose of this exercise is to help you to understand how costs behave relative to activity volume and
how to differentiate between total and per-unit fixed, variable, and mixed costs.
Complete all the highlighted cells in this worksheet. Use Excel formulas for all computations.
1)
Determine whether each of the manufacturing costs listed above are fixed, variable, or mixed .
Enter F, V, or M into the appropriate boxes above.
Hint: if the total cost of an item is the same for all levels of output, the cost is fixed;
if the unit cost of an item is the same for all levels of output, the cost is variable;
otherwise, the cost is mixed.
2)
Complete columns L and M in the table to the right.
For items categorized as variable (‘V’): Enter the Excel formula to compute unit variable cost (in column L).
For items categorized as fixed ( ‘F’): enter the total fixed cost (in column M).
For items categorized as mixed (‘M’): See #3, below, for instructions.
3)
Use the High-Low method to separate mixed costs into their fixed and variable components.
Use Excel formulas to compute the fixed and variable costs. You may use the High-Low Worksheet to show
the computations or enter the formulas directly into the appropriate cells in the table.
Note: If you use the High-Low Worksheet, enter cell references in the table to the right to ‘feed’ your answers
answers from the worksheet.
4)
Use Excel formulas to compute Total cost of 1000 units for each cost item (in column O).
Use the information from columns L and M for your computations.
DO NOT feed totals from the original given data table. I need to see that you know how to compute
the amounts.
5)
Compute the Per-Unit cost for each cost item (in column P).
Windward
Manufacturing Cost
Direct materials
Direct labor
Indirect labor
Indirect material
Electricity
Factory Insurance
Other overhead
Total Manufacturing Costs
Unit
Variable
Cost
Total
Fixed
Cost
Cost of
1000 Units
Total
Per Unit
Administrative and Selling
Admin/Selling Expenses
Total Costs
7ad8caa2b605cbbef8bd3395e58b0c32 CostTemplate
Week
1
2
3
Units of
Output
800
1000
1200
Direct
Materials
$600
750
900
Direct
Labor
$1,000
1250
1500
Indirect
Indirect
Labor
Materials Electricity
$360
$600
$230
400
600
250
440
600
270
Factory
Other
Insurance Overhead
$250
$620
250
720
250
820