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Urgently please. I need answers for these 2 questions:

1)    Luzella is the brand manager

for the Nintendo Wii. She sells her product to Best Buy for $199 and Best Buy sells it at a retail price of $269 to consumers. Sales were going well; in 2008, Luzella sold 3 million units of the Wii. But now, sales were beginning to slow down. To get sales moving again, Luzella wanted to launch a $20 million advertising campaign targeted to senior citizens which would feature the new Wii Fit game. Luzella knew that her product was very profitable, with variable costs of $100, so it seemed like she could afford to spend money advertising the product. She submitted her advertising plan to her boss Tess. Tess liked the idea, but asked Luzella few questions:

a)    How many incremental units of product she would have to sell to breakeven on the advertising investment, and whether this quantity was feasible, given current sales levels. 

b)    Can Luzella feasibly sell this quantity if she runs her advertising campaign? Why or why not?    

c)    Calculate the number of units' company needs to sell in order to earn the target profit of $ 4million.

d)    Calculate the minimum volume of sales required to maintain the current profit, under the given two scenarios:

a.     If the selling prices is raised from $199 to $249,

b.    If the fixed cost fall by $5million but the variable costs rise to $125 per unit, calculate the minimum volume of sales required to maintain the current profit.

2) The Instyle produces only two products: Leather Bags and Leather Shoes. The company uses a normal cost system and overhead costs are currently allocated using a plant-wide overhead rate based on direct labor hours. Outside cost consultants have recommended, however, that the company use activity-based costing to charge overhead to products. The company expects to produce 4,000 leather bags and 2,000 leather shoes in 2017. Each leather bag requires two direct labor hours to produce and each pair of shoe requires half hour to produce. Material and labour costs are given below:

Bags               Shoes

Direct material cost/unit                                           $30                 $17

Direct labour cost/unit                                              $16                 $4

Budgeted (Estimated) Total Factory Overhead Data For 2017:


Budgeted Overhead Dollars

Estimated Volume Level

Production Setups


20 setups

Material Handling


5,000 lbs.

Packaging and Shipping


6,000 boxes

Total Factory Overhead


Based on an analysis of the three overhead activities, it was estimated that the two products would require these activities as follows in 2017:


Leather Bags

Leather Shoes

Overall Totals

Production Setups

5 setups

15 setups

20 setups

Material Handling

1,000 lbs.

4,000 lbs.

5,000 lbs.

Packaging and Shipping

4,000 boxes

2,000 boxes

6,000 boxes


1.    Calculate the cost of both product bags & shoes using traditional method.

2.    Calculate the activity cost rates for (a) setups, (b) material handling and (c) packaging and shipping.

3.    Cost out the two products using an activity-based costing system.

Top Answer

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Activity base.jpg

Activity cost
Cost per bag
Cost per shoe
Total amount Allocation base
(Cost for bag /| (Cost for shoe /
4000 bags)
2000 shoes)
Setup cost

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