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Fixed cost and variable cost for companies

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The websites of selected companies appear below. Review the information about the operations of each of the companies that is provided on these websites.

Biolea (http://www.biolea.gr).

Evian at http://www.evian.com).

Ircon International Limited (http://www.irconinternational.com).

Gulf Craft Inc. (http://www.gulfcraftinc.com).

A brief description of the operations of the company,

Two specific examples of possible fixed costs, two specific examples of possible variable costs, and two specific examples of possible mixed costs.

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Behavior of Costs

Biolea was founded in 1997 by George Dimitriadis and Christine Lacroix and produces and markets organic olive oil and promotes the use of authentic traditional stone ground and cold pressed method of extraction in olive oil production. The company is located in the Astrikas estate in the island of Crete. The estate is now being managed by the 5th generation Dimitriadis family who purchased the estate in the mid-18th century.
Based on the study of Biolea's operations an example of its fixed costs is the property tax levied on the estate. Another fixed cost is the salaries and wages of its management team - whatever the season is the number of members of the management team of Biolea remains relatively constant. On the other hand, the labor cost of the farm workers is a variable cost. As the olive oil production volume increases, the total production labor cost increases. Another variable cost is the cost of packaging which ...

Solution Summary

Fixed and variable costs for companies operations are examined. Multiple companies are examined.

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Cost Estimation, CVP analysis

25. Cost Estimation and regression Analysis:
Dali financial services prepares tax returns for small businesses. Data on the company's total costs and output for the past six months appear in the table that follows. The result of the regression analysis are also provided.
a. Plot the data and regression line on a graph.
b. Estimate total monthly costs for a month when 330 tax returns are prepared, using estimates from regression output.
Month Taxreturns prepared Total costs
January 200 $160,000
February 280 192,000
March 300 198,000
April 260 180,000
May 260 186,000
June 240 170,000

Cost- volume- profit; volume defined in sales dollars. An excerpt from the income statement of the Donelean Company follows. Estimated fixed costs in year 1 are $660,000.
Donelean Company
Income Statement
Year Ended December 31, Year 1
Sales 3,000,000
Operating Expenses:
Cost of goods sold 1,425,000
Selling Costs 450,000
Administrative costs 225,000
Total operating Costs 2,100,000
Profit 900,000

a. What percentage of sales revenue is variable cost?
b. What is the break-even point in sales dollars for Donelean Company?
c. Prepare a cost-volume-profit graph for Donelean Company.
d. If sales revenue falls to $2,500,000, what will be estimated amount of profit?
e. What amount of sales dollars produces a profit of $1,000.000?
CVP analysis and financial modeling( adapted from CMA exam). Storage devices Incorporated is a retailer for high tech recording disks. The projected operating profit for the current year is $200,000 based ona sales volume of 200,000 units. The company has been selling the disks for $16 each; variable costs consist of the $10 purchase price and $2 handling cost. The companys annual fixed costs are $600,000.
Management is planning for the coming year, when it expects that the unit purchase price of the disks will increase by 30 percent.
a. Calculate the companys breakeven point for the current year in units.
b. What will be the companys operating profit for the current year if there is a 20 percent increase in projected unit sales volume?
c. What volume of dollar sales must be achieved in the coming year to maintain the current year's operating profit if the selling price remains at $16?
d. Would the use of a financial model be helpful to the firm in addressing issues such as those raised in requirements b. and c.? Explain.

CVP analysis. A company is decideing which of two new thermostat systems to produce and sell. The Basic system has variable costs of $8 per unit, excluding sales commissions, and annual fixed costs of $520,000; the Deluxe system has variable costs of $6.40, excluding sales commissions, and fixed costs of $672,000. The company's selling price is $32 per unit for the Basic model and $38 for the deluxe model. The company pays a 10 percent sales commission.
a. Which of the two systems will be more profitable for the firm if sales are expected tp average 150,000 units per year?
b. How many units must the company sell to break even if it selects the deluxe system?
c. Suppose the Basic system requires the purchase of additional equipment that is not reflected in the preceding figures. The equipment will cost $224,000 and will be depreciated over a 10 year life by the straight-line method. How many units must the company sell to earn 400,000 of income, after considering depreciation, if the Basic system is selected?
d. Ignoring the information presented in part c., at what volume level will management be indifferent between the Basic system and the Deluxe system?

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