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(solution) RUNNING HEADER: TOY BOX INC. COST OF OPERATION EXERCISE Robert

I am looking for a review of my work - I feel I am not confident in the fixed and variable costs in this scenario.

I have attached my paper and work.

Option #1: Cost of Operation Exercise

Toy Box, Inc., is contemplating expanding sales of their children?s toys. They have an opportunity to stock and sell the X toy that has been a big hit with children everywhere. They must order the X toys from the manufacturer in a minimum order of 100 at a cost of $12 each. They could resell the X toy in their store for $22 each.

Due to anticipated demand, Toy Box, Inc., will need to hire an additional part-time cashier at $600 a month, which will be classified as a fixed-cost attributable to the X toy. In addition, they have offered a $1 sales commission per toy to their floor sales representative. Finally, they will include a package of trading cards with every purchase of an X toy, which will cost them an additional $2 each.

Instructions:

In a well-written paper, answer the questions and perform the calculations described below:

To make the project worthwhile, Toy Box, Inc., would require a $5,000 profit per month. What level of sales, in units and in dollars, would be required to reach this target profit? Show all computations completely, in a table inserted into your document.

Assume that the venture is undertaken and an order is placed for 100 X toys. What would be Toy Box?s break-even point in units and in sales dollars? Show computations completely in an inserted table, and explain the reasoning behind your answer. You can ignore the fixed cost of $600 for this part.

Your paper must be written in Word and should meet the following requirements:

2-3 pages in length, with all calculations in tables inserted in the document.

Written and formatted according to the CSU-Global Guide to Writing and APA Requirements.

Be sure to review the Module 4 Critical Thinking grading rubric, which may be accessed through the Course Information page.

RUNNING HEADER: TOY BOX INC. COST OF OPERATION EXERCISE

Robert Sholty

Principles of Managerial Accounting: FALL16-A-8-ACT305-2

Module 4 ? Toy Box Inc. Cost of Operation Exercise

Colorado State University ? Global Campus

Instructor: Brent M. Tabor

8/27/2016

1

TOY BOX INC. COST OF OPERATION EXERCISE

2

Toy Box Inc. Cost of Operation Exercise

This paper will look at a hypothetical situation for Toy Box Inc. and using the data given will

look at first what level of sales will be needed in units and dollars to reach a target profit of

$5000 per month? Secondly it will suppose an order for 100 X toys is placed and determine what

Toy Box Inc.?s break-even point would in units and sales dollars, in this case the fixed cost of the

below proposed cashier will not be included. This paper will also use different methods to

determine those answer although they could be determined by using the same method.

The Situation

Toy Box, Inc., is contemplating expanding sales of their children?s toys. The have an

opportunity to stock and sell the X toy that has been a big hit with children everywhere.

They must order the X toys from the manufacturer in a minimum order of 100 at a cost of

$12 each. They could resell the X toy in their store for $22 each. Due to anticipated

demand, Toy Box, Inc., will need to hire an additional part-time cashier at $600 a month,

which will be classified as a fixed-cost attributable to the X toy. In addition, they have

offered a $1 sales commission per toy to their floor sales representative. Finally, they will

include a package of trading cards with every purchase of an X toy, which will cost them

an additional $2 each [CSU16].

TOY BOX INC. COST OF OPERATION EXERCISE

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How to Find Target Profit

In order to find the target profit in any situation first the contribution margin must be

determined. ?Contribution margin is a cost accounting concept that allows a company to

determine the profitability of individual products [Inv16].?

Contribution Margin

Selling Price

Variable Expenses

Cost of Toy X

Cost of Cards given away

Commission for Sales

Contribution Margin

$

$

$

12.00

2.00

1.00

$

22.00

$

$

15.00

7.00

After the Contribution Margin is determined the Formula Method will be used to determine

the target profit analysis.

(McGraw Hill/Irwin, 2015, PowerPoint slides from instructor resources as shown in Module 4:

Interactive Lecture).

TOY BOX INC. COST OF OPERATION EXERCISE

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The target profit is $5000 and we are going add in the Fixed expenses (cost of 100 toys-$1200

+ $600 for new cashier) and then divide by the contribution margin.

= ($5000 + $1800) / $7

= 971.42 which will be rounded up to 972 whole units needed to profit $5000

The sales in dollars to profit $5000 would 972 X $22 = $21384 in sales.

Breaking even

The equation method will be used to determine the break-even point. The contribution margin

is still $7 and the fixed cost for this scenario is the minimum order of 100 units at $12. Since we

are looking at the break-even line we will call the profit $0.

Profit = Unit CM X Q - Fixed expense

$0 = $7 X Q - $1200

Add $1200 to both sides

$1200 = $7 X Q

Divide by $7

$1200/$7 = Q

171.42 = Q which round up to 172 units needed to break even.

The sales in dollars to meet the break-even point is 172 X $22 = $3784 in sales.

Conclusion

There are different ways to determine target profit and breaking even and this paper has

demonstrated two of those ways by showing the necessary computations for this cost of

operation exercise.

TOY BOX INC. COST OF OPERATION EXERCISE

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References

CSU Global. (2016). Module 4 Interactive lecture. Retrieved from CSU Global:

https://app.schoology.com/external_tool/247149637/launch

CSU Global Campus. (2016). Module 4: Critical Thinking Assignment - Cost Behavior and

Relationships. Retrieved from Colorado State University Global Campus Module 4:Cost

Behavior and Relationships: https://app.schoology.com/assignment/627740525/info

Investopedia. (2016). Contribution Margin. Retrieved from Investopedia:

http://www.investopedia.com/terms/c/contributionmargin.asp

Ray H. Garrison, E. W. (2015). MANAGERIAL ACCOUNTING, FIFTEENTH EDITION. New

York, NY: McGraw-Hill Education.

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