How much of the fixed costs were allocated between the Standard and Deluxe Boxes based on the Lumpsum Analysis Method? Is the CEO correct that the Deluxe Box ?is not contributing much to comp
1. How much of the fixed costs were allocated between the Standard and Deluxe Boxes based on the Lumpsum Analysis Method? Is the CEO correct that the Deluxe Box is not contributing much to company operating profit? Please elaborate on your answer and include evidence from Tab 1 of the Excel workbook.
Based on the Lumpsum Analysis Method, the standard boxes and the Deluxe box have a total fixed cost of $156 million. A fixed cost of $ 120,000.00 (Million) was allocated for the production of standard boxes, and a cost of $36,000.00 (Million) was reserve for the production of deluxe boxes.
The CEO's assumption that the Deluxe box has little impact on the company's operating profit is incorrect. The operating profit is a company's total earnings before taxes and short-term responsibilities. According to Lumpsum, Deluxe boxes contribute 63% of the company's operating profit, while standard boxes contribute 41%. The company earns 63 cents on every dollar spent on deluxe boxes, accounting for 63% of the operating profit.
2. The intern suggested splitting the costs, as you have done in the calculations performed in Tab 2, based on sales volumes. Explain the impact of calculation performed in Tab 2. In your discussions, please elaborate on why the answer has changed from the calculations you performed in Tab 1. Also indicate the benefit of accurate costing when trying to improve operating profit margins.
[insert your answer here]
3. Based on the calculations in Tab 3 using ABC, comment on the operating profits made for each product. Explain in your report why operating profits have changed under ABC analysis. Also indicate which of the systems – that is the traditional systems (using lumpsum or volume-based cost allocation in Tab 1 and Tab 2) or the ABC systems, (Tab 3) provide the best answers for decision making to improve cost management in order to improve operating profit.
[insert your answer here]
4.The sustainability manger is concerned about the Anti-Deluxe Action group’s impact on the company and suggested that materials and process of making the Deluxe Boxes should be changed. As the process of making the Sustainable Deluxe Boxes, will be less intensive, a suggestion is made that the selling price for the Sustainable Deluxe Boxes could be $23 per unit. Discuss whether changing the price to $23 is a viable option for LGI? Provide evidence from the Excel workbook, Tab 4.
[insert your answer here]
5. If Largo Global Inc. decides to sell the Sustainable Deluxe Boxes at the price the CEO demands to maintain the same profit percentage as for Standard Boxes do you think the new price calculated in Tab 4 is a viable option? Why is it important for LGI to know what their Breakeven quantity is? Also indicate which other (non-numerical information) should be considered when deciding to pursue the Sustainable Deluxe Box option.
Project 3 Questions – Report Template
Instructions: Answer the five questions below. They focus entirely on improving the EBITDA of Largo Global Inc. (LGI) based on the information provided in the Excel workbook. Provide support for your reasoning from the readings in Project 3, Step 1, and the discussion in Project 3, Step 3. Be sure to cite your sources in APA 7th ed. style.
Provide a detailed response below each question. Use 12-point font and double spacing. Maintain the existing margins in this document. Your final Word document, including the questions, should not exceed 5 pages. Include a title page in addition to the five pages. Any tables and graphs you choose to include are excluded from the five-page limit. Name your document as follows: P3_Final_lastname_Report_date.
You must address all five questions and make full use of the information on all tabs.
You are strongly encouraged to exceed the requirements by refining your analysis. Consider other tools and techniques that were discussed in the required and recommended reading for Project 3. This means adding an in-depth explanation of what happened in the year for which data was provided to make precise recommendations to LGI.
Title Page
Name
Course and section number
Faculty name
Submission date
Questions:
1. How much of the fixed costs were allocated between the Standard and Deluxe Boxes based on the Lumpsum Analysis Method? Is the CEO correct that the Deluxe Box is not contributing much to company operating profit? Please elaborate on your answer and include evidence from Tab 1 of the Excel workbook.
Based on the Lumpsum Analysis Method a total fixed cots 156 million between the standard boxes and Deluxe box. Fixed cost of $ 120,000.00 (Million) was allocated for the production of standard boxes and $36,000.00 (million) was also allocated for the production of deluxe boxes.
[insert your answer here]
2. The intern suggested splitting the costs, as you have done in the calculations performed in Tab 2, based on sales volumes. Explain the impact of calculation performed in Tab 2. In your discussions, please elaborate on why the answer has changed from the calculations you performed in Tab 1. Also indicate the benefit of accurate costing when trying to improve operating profit margins.
[insert your answer here]
3. Based on the calculations in Tab 3 using ABC, comment on the operating profits made for each product. Explain in your report why operating profits have changed under ABC analysis. Also indicate which of the systems – that is the traditional systems (using lumpsum or volume-based cost allocation in Tab 1 and Tab 2) or the ABC systems, (Tab 3) provide the best answers for decision making to improve cost management in order to improve operating profit.
[insert your answer here]
4.The sustainability manger is concerned about the Anti-Deluxe Action group’s impact on the company and suggested that materials and process of making the Deluxe Boxes should be changed. As the process of making the Sustainable Deluxe Boxes, will be less intensive, a suggestion is made that the selling price for the Sustainable Deluxe Boxes could be $23 per unit. Discuss whether changing the price to $23 is a viable option for LGI? Provide evidence from the Excel workbook, Tab 4.
[insert your answer here]
5. If Largo Global Inc. decides to sell the Sustainable Deluxe Boxes at the price the CEO demands to maintain the same profit percentage as for Standard Boxes do you think the new price calculated in Tab 4 is a viable option? Why is it important for LGI to know what their Breakeven quantity is? Also indicate which other (non-numerical information) should be considered when deciding to pursue the Sustainable Deluxe Box option.
[insert your answer here]
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Tab 1 Lumpsum Analysis
| 14-Mar-22 | ||||||||||||
| In Project 3 you will analyse managerial and costing information to improve the company's EBITDA. You will use what you have learned about cost behavior and apply activity-based costing and cost-volume-profit analysis to make recommendations about LGI’s operational productivity. Step 1: Use the information you calculated in Project 2 Tab 3 Profit Maximization to populate has Columns C to H in Question 1. Step 2: Assume the company operates for 12 months of the year convert the information you populated in Columns C to H to annual information and populate Columns I to M for both the Standard and Deluxe Boxes. Step 3: Assume for this project that the only variable costs in this company are materials and labour. All other overhead costs will be assumed to be fixed. | ||||||||||||
| Standard Boxes Profit Maximization ( obtain Column C to H from Project 2) | Annual information ( for 12 Months) | |||||||||||
| Standard boxes sold per month (millions) | Price | Revenue (price x volume) | Variable Cost per Standard box | Variable Cost (cost per unit x volume) | Fixed cost per month (millions) | Total Cost (Fixed + Variable) | Monthly Profit (revenue – all costs) | Annual Revenue (millions) | Annual VC (millions) | Annual FC (millions) | Annual Total Costs (millions) | Annual Profit |
| 5 | $ 22.00 | $ 110.00 | $ 10.00 | $ 50.00 | $ 10.00000 | $ 60.0000 | $ 50.00 | $ 1,320.00 | $ 600.00 | $ 120.00000 | $ 720.0000 | $ 600.00 |
| 5.5 | $ 21.60 | $ 118.80 | $ 10.00 | $ 55.00 | $ 10.00000 | $ 65.0000 | $ 53.80 | $ 1,425.60 | $ 660.00 | $ 120.00000 | $ 780.0000 | $ 645.60 |
| 6 | $ 21.20 | $ 127.20 | $ 10.00 | $ 60.00 | $ 10.00000 | $ 70.0000 | $ 57.20 | $ 1,526.40 | $ 720.00 | $ 120.00000 | $ 840.0000 | $ 686.40 |
| 6.5 | $ 20.80 | $ 135.20 | $ 10.00 | $ 65.00 | $ 10.00000 | $ 75.0000 | $ 60.20 | $ 1,622.40 | $ 780.00 | $ 120.00000 | $ 900.0000 | $ 722.40 |
| 7 | $ 20.40 | $ 142.80 | $ 10.00 | $ 70.00 | $ 10.00000 | $ 80.0000 | $ 62.80 | $ 1,713.60 | $ 840.00 | $ 120.00000 | $ 960.0000 | $ 753.60 |
| 7.5 | $ 20.00 | $ 150.00 | $ 10.00 | $ 75.00 | $ 10.00000 | $ 85.0000 | $ 65.00 | $ 1,800.00 | $ 900.00 | $ 120.00000 | $ 1,020.0000 | $ 780.00 |
| 8 | $ 19.60 | $ 156.80 | $ 10.00 | $ 80.00 | $ 10.00000 | $ 90.0000 | $ 66.80 | $ 1,881.60 | $ 960.00 | $ 120.00000 | $ 1,080.0000 | $ 801.60 |
| 8.5 | $ 19.20 | $ 163.20 | $ 10.00 | $ 85.00 | $ 10.00000 | $ 95.0000 | $ 68.20 | $ 1,958.40 | $ 1,020.00 | $ 120.00000 | $ 1,140.0000 | $ 818.40 |
| 9 | $ 18.80 | $ 169.20 | $ 10.00 | $ 90.00 | $ 10.00000 | $ 100.0000 | $ 69.20 | $ 2,030.40 | $ 1,080.00 | $ 120.00000 | $ 1,200.0000 | $ 830.40 |
| 9.5 | $ 18.40 | $ 174.80 | $ 10.00 | $ 95.00 | $ 10.00000 | $ 105.0000 | $ 69.80 | $ 2,097.60 | $ 1,140.00 | $ 120.00000 | $ 1,260.0000 | $ 837.60 |
| 10 | $ 18.00 | $ 180.00 | $ 10.00 | $ 100.00 | $ 10.00000 | $ 110.0000 | $ 70.00 | $ 2,160.00 | $ 1,200.00 | $ 120.00000 | $ 1,320.0000 | $ 840.00 |
| 10.5 | $ 17.60 | $ 184.80 | $ 10.00 | $ 105.00 | $ 10.00000 | $ 115.0000 | $ 69.80 | $ 2,217.60 | $ 1,260.00 | $ 120.00000 | $ 1,380.0000 | $ 837.60 |
| 11 | $ 17.20 | $ 189.20 | $ 10.00 | $ 110.00 | $ 10.00000 | $ 120.0000 | $ 69.20 | $ 2,270.40 | $ 1,320.00 | $ 120.00000 | $ 1,440.0000 | $ 830.40 |
| 11.5 | $ 16.80 | $ 193.20 | $ 10.00 | $ 115.00 | $ 10.00000 | $ 125.0000 | $ 68.20 | $ 2,318.40 | $ 1,380.00 | $ 120.00000 | $ 1,500.0000 | $ 818.40 |
| 12 | $ 16.40 | $ 196.80 | $ 10.00 | $ 120.00 | $ 10.00000 | $ 130.0000 | $ 66.80 | $ 2,361.60 | $ 1,440.00 | $ 120.00000 | $ 1,560.0000 | $ 801.60 |
| 12.5 | $ 16.00 | $ 200.00 | $ 10.00 | $ 125.00 | $ 10.00000 | $ 135.0000 | $ 65.00 | $ 2,400.00 | $ 1,500.00 | $ 120.00000 | $ 1,620.0000 | $ 780.00 |
| 13 | $ 15.60 | $ 202.80 | $ 10.00 | $ 130.00 | $ 10.00000 | $ 140.0000 | $ 62.80 | $ 2,433.60 | $ 1,560.00 | $ 120.00000 | $ 1,680.0000 | $ 753.60 |
| 13.5 | $ 15.20 | $ 205.20 | $ 10.00 | $ 135.00 | $ 10.00000 | $ 145.0000 | $ 60.20 | $ 2,462.40 | $ 1,620.00 | $ 120.00000 | $ 1,740.0000 | $ 722.40 |
| 14 | $ 14.80 | $ 207.20 | $ 10.00 | $ 140.00 | $ 10.00000 | $ 150.0000 | $ 57.20 | $ 2,486.40 | $ 1,680.00 | $ 120.00000 | $ 1,800.0000 | $ 686.40 |
| Deluxe Boxes Profit Maximization ( Columns C to H obtain from Project 2) | Annual information ( for 12 Months) | |||||||||||
| Deluxe boxes sold per month (millions) | Price | Revenue (price x volume) | Variable Cost per Deluxe box | Variable Cost (cost per unit x volume) | Fixed cost per month (millions) | Total Cost (Fixed + Variable) | Monthly Profit (revenue – all costs) | Annual Revenue (millions) | Annual VC (millions) | Annual FC (millions) | Annual Total Costs (millions) | Annual Profit (millions) |
| 1 | $ 30.00 | $ 30.00 | $ 20.00 | $ 20.00 | $ 3.00000 | $ 23.0000 | $ 7.00 | $ 360.00 | $ 240.00 | $ 36.000000 | $ 276.00 | $ 84.00 |
| 1.2 | $ 29.50 | $ 35.40 | $ 20.00 | $ 24.00 | $ 3.00000 | $ 27.0000 | $ 8.40 | $ 424.80 | $ 288.00 | $ 36.00 | $ 324.00 | $ 100.80 |
| 1.35 | $ 29.00 | $ 39.15 | $ 20.00 | $ 27.00 | $ 3.00000 | $ 30.0000 | $ 9.15 | $ 469.80 | $ 324.00 | $ 36.00 | $ 360.00 | $ 109.80 |
| 1.5 | $ 28.50 | $ 42.75 | $ 20.00 | $ 30.00 | $ 3.00000 | $ 33.0000 | $ 9.75 | $ 513.00 | $ 360.00 | $ 36.00 | $ 396.00 | $ 117.00 |
| 1.55 | $ 28.00 | $ 43.40 | $ 20.00 | $ 31.00 | $ 3.00000 | $ 34.0000 | $ 9.40 | $ 520.80 | $ 372.00 | $ 36.00 | $ 408.00 | $ 112.80 |
| 1.6 | $ 27.50 | $ 44.00 | $ 20.00 | $ 32.00 | $ 3.00000 | $ 35.0000 | $ 9.00 | $ 528.00 | $ 384.00 | $ 36.00 | $ 420.00 | $ 108.00 |
| 1.65 | $ 27.00 | $ 44.55 | $ 20.00 | $ 33.00 | $ 3.00000 | $ 36.0000 | $ 8.55 | $ 534.60 | $ 396.00 | $ 36.00 | $ 432.00 | $ 102.60 |
| 1.7 | $ 26.50 | $ 45.05 | $ 20.00 | $ 34.00 | $ 3.00000 | $ 37.0000 | $ 8.05 | $ 540.60 | $ 408.00 | $ 36.00 | $ 444.00 | $ 96.60 |
| 1.75 | $ 26.00 | $ 45.50 | $ 20.00 | $ 35.00 | $ 3.00000 | $ 38.0000 | $ 7.50 | $ 546.00 | $ 420.00 | $ 36.00 | $ 456.00 | $ 90.00 |
| 1.8 | $ 25.50 | $ 45.90 | $ 20.00 | $ 36.00 | $ 3.00000 | $ 39.0000 | $ 6.90 | $ 550.80 | $ 432.00 | $ 36.00 | $ 468.00 | $ 82.80 |
| 1.85 | $ 25.00 | $ 46.25 | $ 20.00 | $ 37.00 | $ 3.00000 | $ 40.0000 | $ 6.25 | $ 555.00 | $ 444.00 | $ 36.00 | $ 480.00 | $ 75.00 |
| 1.9 | $ 24.50 | $ 46.55 | $ 20.00 | $ 38.00 | $ 3.00000 | $ 41.0000 | $ 5.55 | $ 558.60 | $ 456.00 | $ 36.00 | $ 492.00 | $ 66.60 |
| 1.95 | $ 24.00 | $ 46.80 | $ 20.00 | $ 39.00 | $ 3.00000 | $ 42.0000 | $ 4.80 | $ 561.60 | $ 468.00 | $ 36.00 | $ 504.00 | $ 57.60 |
| 2 | $ 23.50 | $ 47.00 | $ 20.00 | $ 40.00 | $ 3.00000 | $ 43.0000 | $ 4.00 | $ 564.00 | $ 480.00 | $ 36.00 | $ 516.00 | $ 48.00 |
| 2.05 | $ 23.00 | $ 47.15 | $ 20.00 | $ 41.00 | $ 3.00000 | $ 44.0000 | $ 3.15 | $ 565.80 | $ 492.00 | $ 36.00 | $ 528.00 | $ 37.80 |
| 2.1 | $ 22.50 | $ 47.25 | $ 20.00 | $ 42.00 | $ 3.00000 | $ 45.0000 | $ 2.25 | $ 567.00 | $ 504.00 | $ 36.00 | $ 540.00 | $ 27.00 |
| 2.15 | $ 22.00 | $ 47.30 | $ 20.00 | $ 43.00 | $ 3.00000 | $ 46.0000 | $ 1.30 | $ 567.60 | $ 516.00 | $ 36.00 | $ 552.00 | $ 15.60 |
| 2.2 | $ 21.50 | $ 47.30 | $ 20.00 | $ 44.00 | $ 3.00000 | $ 47.0000 | $ 0.30 | $ 567.60 | $ 528.00 | $ 36.00 | $ 564.00 | $ 3.60 |
| 2.25 | $ 21.00 | $ 47.25 | $ 20.00 | $ 45.00 | $ 3.00000 | $ 48.0000 | -$ 0.75 | $ 567.00 | $ 540.00 | $ 36.00 | $ 576.00 |
