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In this case, you are provided information regarding selling prices and costs of several products offered by Mendel Paper Company. In addition, management has concerns about sales mix and rising costs. Address the questions (1-5) at the end of the case. Based on the case questions, you are required to provide a three to five double-spaced written report addressing management’s concerns. The written report should be properly formatted according to APA guidelines and demonstrate research and critical thinking skills. Conclusions and recommendations should be supported by at least 2 scholarly sources from the Ashford Library or other external sources, excluding the textbook.
For Questions 1 through 4, you will need to complete several calculations – be sure to label and clearly identify your work to demonstrate your understanding of the concept even if you arrive at the incorrect answer. The calculations should be included as part of your analysis and written report required for submission.
For Question 5, fully address management’s concerns as part of your written analysis using the new or the previous calculations to support your recommendation/explanation. As part of your written analysis, include how management might use these calculations to make decisions. The written analysis should be supported by at least 2 scholarly sources, excluding the textbook.
Week 1 Written Assignment should:
•Demonstrate graduate level work including appropriate research and critical thinking skills.
•Be presented as a written analysis (not a question/answer format)
•Incorporate case questions into the overall analysis.
•Follow APA formatting guidelines including title page, reference page and in-text citations
•Consists of three to five double-spaced pages of content
•Provide at least 2 scholarly sources, excluding the textbook.
ANSWERS FOR QUESTIONS 1-5
1. From all original estimates given, prepare estimated contribution margins by product line for the next fiscal quarter. Also, show the contribution margins per unit.
Product Line Sales Volume Price Variable Cost Contribution
Margin/Unit Ratio
Comp. Paper 30,000 $14.00 $6.00 $8.00 57%
$8.00*30,000 = $240,000 CM
Napkins 120,000 $ 7.00 $4.50 $2.50 36%
$2.50*120,000 = $300,000 CM
Place Mats 45,000 $12.00 $3.60 $8.40 70%
$8.40 * 45,000 = $378,000 CM
Poster Board 80,000 $ 8.50 $2.50 $6.00 71%
$6.00 * 80,000 = $480,000 CM
Total 275,000
Sales Proportions CM/Product Weighed CM
Computer Paper 11% * $8.00 = $0.88
Napkins 44% * $2.50 = $1.10
Place Mats 16% * $8.40 = $1.34
Poster Board 29% * $6.00 = $1.74
Total 100% $5.06 weighted CM
Total Fixed Costs = $420,000+$118,000 = 538,000
Total Units = $538,000/$5.06 = 106,324 Break Even
Product Lines Sales Mix % Total Units # of Products Unit CM CM
Comp. Papers 11% 106,324 11,696 $8.00 $93,568
Napkins 44% 106,325 46,783 $2.50 $116,956
Place Mats 16% 106324 17,012 $8.40 $142,899
Poster Board 29% 106324 30,834 $6.00 $185,003
2. Prepare contribution margins as in part (1) with all revisions included.
Product Line Sales Volume Price Variable Cost Contribution
Margin/Unit Ratio
Comp. Paper 35,000 $14.00 $7.00 $7.00 50%
Napkins 120,000 $ 7.00 $4.50 $2.50 36%
Place Mats 45,000 $12.00 $4.00 $8.00 67%
Poster Board 80,000 $ 8.50 $2.50 $6.00 71%
Total 280,000
Sales Proportions CM/Product Weighed CM
Computer Paper 13% * $7.00 = $0.91
Napkins 44% * $2.50 = $1.10
Place Mats 16% * $8.00 = $1.28
Poster Board 29% * $6.00 = $1.74
Total 100% $5.03 weighted CM
$538,000/$5.03 = $106,958 Break Even
3. For the original estimates, compute each of the following:
(a) Break-even point for the given sales mix.
Total Costs / Weighted CM
$538,000/$5.06 = 106,324 Break Even
(b) Margin of safety for the estimated sales volume.
275,000 – 106,324 = 168,676
168,000/275000 = .61 = 61%
4. For the revised estimates, compute each of the following:
(a) Break-even point for the given sales mix.
538,000/$5.03 = 106,958 Break Even
(b) Margin of safety for the estimated sales volume.
280,000 – 106958 = 173,042
5. Comment on Herbert’s concern about the variable cost of the place mats.
Place mats contribution margin (CM) is the second highest of the four products (at $142,899) and has the highest individual contribution margin per unit of the four products ($8.40). Variable costs for place mats is $3.60 rendering a $8.40 CM per unit; if the variable costs were to go up to $5.00 the CM per unit would still be $7.00 per unit ($315,000). These would be a difference of $63,000 dollars ($378,000 – $315,000 = $63,000). Herbert’s concerns about the increasing variable costs of place mats at this time are unfounded.
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