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.
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?
Supply the missing data in each independent case.
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:
Direct materials $0.60
Direct labor 0.50
Factory overhead 0.50
$1.60 Factory overhead $14,000
Selling and admin. 0.30 Selling and admin. 6,000
Total $1.90 Total $20,000
STC Supply produced and sold 20,000 cards during October 2014. There were no beginning or ending inventories.
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.
Briefly explain the limitation of basic cost-volume-profit analysis as it relates to an organization’s sales mix.
Explain the importance of sales mix analysis in a multiple-product organization.