You should write a 250- 300 word memo about the following situation.
You have just been hired as the new managerial accountant for ACC, Co. This company makes calendars for the ACC schools. The owner of the business is Mr. Profit. He does not understand managerial accounting and just had a meeting with his banker. Mr. Profit was denied a loan for an additional $120,000 to purchase new equipment for the business.
Here is the financial information. This is based on 1-unit or calendar.
1- calendar sells for $10.00
Variable costs are $6.00 per calendar
Fixed costs are $200,000
Here is a list of all costs.
It is your job to indicate which would be variable costs and fixed costs.
1. Equipment lubricants
2. Ink for printing
3. Software Costs, which are flat amount
4. Print and binding wages paid to workers that make the calendars
5. Shop supervisor that performs all oversight and is paid salary
6. Quality Control inspector to review the calendars
7. Rent for the shop
8. Depreciation expense on print equipment
9. ACC Logo copyright costs to print on each calendar paid to ACC
10. Insurance and taxes on print equipment
11. Metal binders to bind the calendars
12. Shop supplies needed for production
13. Printing Paper
You are to write a 250-300 word memo to Mr. Profit on the following situation.
1. What are variable costs and indicate which ones are classified as variable costs to make the calendars?
2. What are fixed costs and indicate which ones are classified as fixed costs to make the calendars?
3. How many calendars should be sold to break even before the loan?
4. If the new loan is approved, operating income would need to increase $120,000 over a 1-year period to payback the new loan. What amount of sales dollars would be needed to achieve this?