“DEPARTMENT OF BUSINESS ADMINISTRATION”

“FINAL PROJECT”

“JW Sports A Case Study”

Submitted To: Sir Submitted By:

Javeria Asif (2019-BBA-033)

Haiqa Malik (2019-BBA-027)

Saba Sadiq (2019-BBA-0)

Javeria Khalil (2019-BBA-0)

Course: Cost Accounting

Semester: 6th

Dated: June 23th, 2022

  Questions related to cost behavior

Question 1:

a) Scatterplot:

SCATTERPLOT
180000

160000

140000

120000
Actual Cost

100000

80000

60000

40000

20000

0
800 1000 1200 1400 1600 1800 2000 2200
Actual Units

b) Fixed cost is equal to $ 100,000 which is the spot that the line meets Y axis. Whereas the
calculation for variable cost is as follows.

Variable cost = (y2 – y1) ÷ (x2 – x1)

Variable cost = (162,000 – 100,000) ÷ (1,970 – 0)

Variable cost = (62,000) ÷ (1,970)

VC = 31.47

C)

First step (sorting data):

970,1000,1100,1175,1200,1210,1250,1410,1450,1510,1520,1600,1600,1650,1700,1710,1800,
1850, 1890,1900,1970,1970.

Second step (Median):

Median = 22 ÷ 2

Median = 11

Median would be

= (1520 + 1600) ÷ 2

= 1560

Third step (Quartile 1):

Q1 is the middle value from the first half of the data set. Which is from 970 to 1520. There are 11
values and as 11 is odd, we will have to take a median to get the accurate 5.5th value.

Q1 = (1200 + 1210) ÷ 2

Q1 = 1,205

Third step (Quartile 1):

Q3 is the middle value from the second half of the data set. Which is from 1600 to 1970. There are
11 values and as 11 is odd, we will have to take a median to get the accurate 5.5th value.

Q3 = (1710 + 1800) ÷ 2

Q3 = 1,755

Fourth step (Finding IQR):

IQR = Q3 – Q1

IQR = 1,755 – 1,205

IQR = 550

Fifth step (upper fence or high outliners):

Any values exceeding the upper fence are outliners.

= Q3 + (1.5×IQR)

= 1755 + (1.5×550)

= 2580

HENCE THERE ARE NO OUTLINERS

Sixth step (lower fence or low outliners):

Any values less than the lower fence are outliners.

= Q1 - (1.5×IQR)

= 1,205 - (1.5×550)

= 380

HENCE THERE ARE NO OUTLINERS.

d) The activity range is from 970 to 1970.

Question 2:

Given:

MCH = $ 162,000

MCL = $ 100,000

AH = $ 1,970

AL = $ 970

VC =?

FC =?

Calculation for VC and FC:

Variable cost = (MCH – MCL) ÷ (AH – AL)

Variable cost = (162,000 – 100,000) ÷ (1,970 – 970)

Variable cost = (62,000) ÷ (1,000)

Variable cost = $ 62

Fixed Cost = MCH – (VC × AL)

Fixed Cost = 162,000 – (62 × 970)

Fixed Cost = 162,000 – (60,140)

Fixed Cost = $ 101,860

Equation:

Y = 101,860 + 62x

Question 3

Direct Material = Variable Cost

Direct Labor = Variable Cost

Rent = Fixed Cost

Depreciation = Fixed Cost

Electricity = Mixed Cost

Other manufacturing = Mixed Cost

Selling = Fixed Cost

Sales Commission = Variable Cost

Administrative = Fixed Cost

 Questions related to cost volume profit analysis.

Question number 03:

Assume that the company prices its products at $100. What is the CM per unit?
Answer:
Data:
(a)
Total units = 1200
Total price per unit = $100
Variable Cost
Direct Material = $36,000
Direct Labor = $18,000
Sales Commission = $12,000
Now, Total Variable cost = Direct Material cost + Direct Labor cost + Sales Commission
Total Variable Cost = $36,000 + $18,000 + $12,000
Total Variable Cost =$66,000
Solution:
Now, as the formula for Contribution Margin per unit is as follows:
Price per unit−Variable cost per unit
Contribution Margin per unit = ………………(i)
Price per unit
Total Variable cost
Where, variable cost per unit =
Number of units
Putting values:
Total Variable cost
Variable Cost per unit =
Number of units
$ 66,000
Variable Cost per unit =
1200
Variable Cost per unit = $55
Now, putting values in equation (i):
$ 100−$ 55
Contribution Margin per unit =
$ 100

$ 45
Contribution Margin per unit =
$ 100
Hence, Contribution Margin per unit = $0.45
____________________________________________________________
(b) Now,
Total units = 1900
Total price per unit = $100
Variable cost
Direct Material = $57,000
Direct Labor = $28,500
Sales Commission = $19,000
Now, Total Variable cost = Direct Material cost + Direct Labor cost + Sales Commission
Total Variable Cost = $57,000 + $28,500 + $19,000
Total Variable Cost =$104,500
Solution:
Now, as the formula for Contribution Margin per unit is as follows:
Price per unit−Variable cost per unit
Contribution Margin per unit = ………………(i)
Price per unit
Total Variable cost
Where, variable cost per unit =
Number of units
Putting values:
Total Variable cost
Variable Cost per unit =
Number of units
$ 104,500
Variable Cost per unit =
1900
Variable Cost per unit = $55
Now, putting values in equation (i):
$ 100−$ 55
Contribution Margin per unit =
$ 100
$ 45
Contribution Margin per unit =
$ 100
Hence, Contribution Margin per unit = $0.45
____________________________________________________________________________
Question number 05:
Assume the company sells 800 units. What is the price it must set on its product to break
even?
Answer:
Data:
Total units (Break-even sales) = 800

Fixed cost:
Rent = $5000
Depreciation = $4000
Selling = $8000
Administrative = $5000
Total fixed cost= Rent+ Depreciation+ Selling+ Administrative
Total fixed cost= $5000+ $4000+ $8000+ $5000
Total fixed cost= $22,000
Price to be set to achieve break-even= ?
Solution:
As, the formula to calculate break-even sales is as follows:
¿ Cost
Break-even point (sales) =
Contribution Margin
¿ Cost
Break-even point (sales) =
Sales price−Variable cost
¿ Cost
So, Sales price- Variable cost =
Break−even (sales)
¿ Cost
So, Sales price = + Variable cost ………….(i)
Break−even ( sales)
As, it can be observed that in the data provided in exhibit 4:

Variable Cost Number of Per unit cost ( Number of Per unit cost (
units= 1200 Variable Cost/ units= 1900 Variable Cost/
Number of Number of
units) units)
 Direct Material $36,000 $36,000/ 1200= $57,000 $57,000/ 1900
$30 = $30
Direct Labor $18,000 $18,000/ 1200= $28,500 $28,500/ 1900=
$15 $15
Sales $12,000 $12,000/ 1200= $19,000 $19,000/1900=
Commission $10 $10

So, in order to calculate total variable cost at 800 sales, the following formula will be used:
Total variable cost= Per unit cost* number of units
Now, Putting values:
i. Direct material = $30*800= $24,000
ii. Direct Labor = $15*800= $12,000
iii. Sales Commission = $10*800= $8000
Total variable cost = Sum of all variable costs
Total variable cost = Direct Material+ Direct Labor+ Sales Commission
Total variable cost = $24,000+ $12,000+ $8000
Total variable cost = $24,000+ $12,000+ $8000
Total variable cost = $44,000
Now, putting values on equation (i), we have:
¿ Cost
Sales price = + Variable cost
Break−even (sales)
$ 22,000
Sales price = + $44,000
800
Sales price = $27.5 + $44,000
Sales price = $44,027.5
Hence, in order to breakeven, it must price its products at $44,027.5