Use Excel Or Word Only: Provide All Supporting Calculations
Use Excel Or Word Only Provide All Supporting Calculations To Show Ho
Use Excel or Word only. Provide all supporting calculations to show how you arrived at your numbers Part A: Fixed and Variable Cost Stuart Manufacturing produce metals pictures frames. The Company’s income statement for the last two years are given below Last Year This Year Units Sold 50,000 70,000 Sales $80,000 $1,120,000 Cost of Goods Sold $55,000 Gross Margin $25,000 Selling and administrative expense $150,000 Net Operating Income $100,000 $220,000 The company has no beginning or ending inventories. Required: a. Estimate the company's total variable cost per unit and its total fixed costs per year. (Remember that this is a manufacturing firm.) b. Compute the company's contribution margin for this year.
Paper For Above instruction
Introduction
Stuart Manufacturing specializes in producing metal picture frames, operating within a manufacturing setting where understanding fixed and variable costs is crucial for effective managerial decision-making. The company’s financial data over the past two years reveals insights into its cost behavior, sales performance, and profitability. This paper provides a detailed analysis of fixed and variable costs based on the provided income statements, using structured calculations and supporting spreadsheets in Excel or Word. Additionally, the contribution margin for the current year is computed to evaluate the company's profitability capacity.
Data Summary
The financial data provided includes sales, costs, and net operating income for two consecutive years:
| | Last Year | This Year |
|---|-------------|-----------|
| Units Sold | 50,000 | 70,000 |
| Sales | $80,000 | $1,120,000 |
| Cost of Goods Sold | $55,000 | - |
| Gross Margin | $25,000 | - |
| Selling & Admin Expenses | $150,000 | - |
| Net Operating Income | $100,000 | $220,000 |
Note: The provided data appears inconsistent; for instance, the sales figures seem low relative to the units sold, indicating potential misprints. However, based on the instructions, we will proceed using the given numerical figures for calculations per typical methods.
Estimating Variable and Fixed Costs
Given the absence of beginning and ending inventories, the cost of goods sold (COGS) reflects direct manufacturing costs solely associated with units sold, thereby facilitating the separation of variable and fixed manufacturing costs through analysis of changes across the two years.
Step 1: Calculate Variable Cost Per Unit
The core assumption in cost-volume-profit analysis is that total variable costs vary proportionally with units sold, while fixed costs remain constant over the relevant period.
Using data from last year:
- Total COGS = $55,000
- Units sold = 50,000
Similarly, for this year:
- Units sold = 70,000
- Sales and net income increased, but COGS data for this year seems missing or inconsistent. Assuming the provided COGS ($55,000) pertains to last year only, and that for the current year, COGS proportionally increased.
Given the data limitations, an approximation approach involves calculating variable costs based on the change in total costs corresponding to the change in units sold between years.
Step 2: Compute Total Variable Costs
The assumption is that:
- Variable costs per unit are constant across years.
- Total Variable Costs = Variable Cost per unit × Units sold.
Using last year's data:
\[
VC_{per\_unit} = \frac{\text{Total COGS}_\text{Year 1}}{\text{Units Sold}_\text{Year 1}} = \frac{\$55,000}{50,000} = \$1.10 \text{ per unit}
\]
Applying this to the current year:
\[
\text{Total Variable COGS}_\text{Year 2} = \$1.10 \times 70,000 = \$77,000
\]
Step 3: Determine Fixed Costs
Total costs are separated into variable and fixed components. Using the income statement:
- Gross Margin for last year = Sales - COGS = $80,000 - $55,000 = $25,000
- Gross Margin for this year = $1,120,000 - \$77,000 = \$1,043,000
Selling and administrative expenses are provided as $150,000; assuming they are fixed, as is typical, the fixed costs can be approximated.
From last year's net operating income:
\[
\text{Net Income} = \text{Gross Margin} - \text{Selling/Admin Expenses} = \$25,000 - \$150,000 = -\$125,000
\]
which conflicts with the given net income ($100,000). However, considering possible data inconsistencies, we focus on the process.
In this context, and based on standard practice:
\[
\text{Total Fixed Costs} = \text{Total Expenses} - \text{Total Variable Costs}
\]
An estimate:
\[
\text{Total Fixed Costs} \approx \$150,000
\]
Given the unchanging nature of admin expenses and the fixed cost assumptions for manufacturing.
Contribution Margin Calculation
Contribution margin is computed as total sales minus total variable costs:
\[
\text{Contribution Margin} = \text{Sales} - \text{Total Variable Costs}
\]
For this year:
\[
\text{Contribution Margin} = \$1,120,000 - \$77,000 = \$1,043,000
\]
Alternatively, on a per-unit basis:
\[
\text{Contribution Margin per unit} = \text{Selling Price per unit} - \text{Variable Cost per unit}
\]
Given the sales:
\[
\text{Selling Price per unit} = \frac{\$1,120,000}{70,000} = \$16
\]
Therefore:
\[
\text{Contribution Margin per unit} = \$16 - \$1.10 = \$14.90
\]
Conclusion
Based on the calculations and assumptions made due to data limitations, the estimated variable cost per unit for Stuart Manufacturing’s metal picture frames is approximately \$1.10, with total fixed costs around \$150,000 annually. The contribution margin for the current year is approximately \$1,043,000 or \$14.90 per unit, illustrating the company's significant contribution to covering fixed costs and generating profit.
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