# Ontario Outdoors is a manufacturer of outdoor items

Problem 1

Ontario Outdoors is a manufacturer of outdoor items.  The company is considering the possibility of offering a new sleeping bag that would sell for \$150 each.  Cost to manufacture these sleeping bags includes \$40 in materials and \$35 in direct labor for each sleeping bag. Variable marketing and selling costs would be \$15 each.  In order to manufacture these sleeping bags, the company would need to incur \$120,000 in fixed costs for new equipment.

Required:

a. Compute the break-even point of the sleeping bag in units sold.
b. What would be the total revenue at the break-even point?
c. How many units would Ontario need to sell to earn a profit of \$21,000?
d. If fixed costs in fact are \$150,000 rather than \$120,000, how many units would need to be sold in order to earn \$21,000?

Problem 2

Supply the missing data in each independent case.

Problem 3

The STC Supply manufactures memory cards that sell to wholesalers for \$4.00 each.  Variable and fixed costs are as follows:

Variable Costs per card:            Fixed Costs per Month:
Manufacturing
Direct materials    \$0.60
Direct labor    0.50
Total    \$1.90        Total    \$20,000

STC Supply produced and sold 20,000 cards during October 2014.  There were no beginning or ending inventories.

Required:

a. Prepare a contribution income statement for the month of October.
b. Determine STC Supply’s monthly break-even point in units.
c. Determine the effect on monthly profit of a 1,000 unit increase in monthly sales.
d. If STC Supply is subject to an income tax of 40 percent, determine the dollar sales volume required to earn a monthly after-tax profit of \$30,000.

Problem 4

Briefly explain the limitation of basic cost-volume-profit analysis as it relates to an organization’s sales mix.

Problem 5

Explain the importance of sales mix analysis in a multiple-product organization.

Here’s the SOLUTION

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