Based on the calculations in Tab 3 using ABC, comment on the profits made for each product type. Explain in your report why this has changed under ABC costing.

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Questions:

1. How much of the costs were allocated between the standard and deluxe models of the product? Is the marketing manager correct that LGI is making significant margins on the Deluxe Loot Box? Elaborate on your answer and include evidence from Tab 1 of the Excel workbook.

2. The IT manager indicated that splitting the costs, as you have done in the calculations performed in Tab 2, does nothing to improve the bottom line.

She said: “The amounts are relatively small and as it all comes from the same pot in the end, there is no need to split the costs, it just creates additional coding categories for the system.” Explain why the calculation performed in Tab 2 is important.

In your discussions, also indicate the benefit of accurate costing when trying to improve profit margins.

3. Based on the calculations in Tab 3 using ABC, comment on the profits made for each product type. Explain in your report why this has changed under ABC costing.

Also indicate which one of the two systems; that is, historical cost or ABC, provides the best answers for decision making to improve cost management to improve EBITDA.

4. The marketing manager suggested that to improve EBITDA and increase sales volume, the Deluxe Loot Box should be sold at the same margin as the Standard Loot Box. Base your answers on the ABC calculations performed in Tab 3 to indicate how much Largo will need to charge for the Deluxe Loot Box.

Indicate how many Deluxe Loot Boxes the company will have to sell at the new price to break even. Discuss whether changing the price is a viable option for Largo. Provide evidence from the Excel workbook, Tab 4.

5. If Largo Global Inc. is unable to sell the Deluxe Loot Box for more than $27.86, discuss possible alternatives. Doing the same thing LGI is already doing is not an option; you must suggest how to improve EBITDA.

Discuss the facts that should be considered in determining whether manufacturing the Loot Boxes in-house could lead to a price reduction. No calculations are required for Question 5

 

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