Goose down is used in a wide variety of products, including jackets, bedding, and pillows.

Lands’ End, a retailer of clothing and bedding items, uses goose down in many of its products.

For a variety of reasons, the cost of down has been increasing over the past several years. On the demand side, the demand for down is increasing. The increasing popularity of down jackets from a fashion standpoint is driving most of the increase in demand for down. In prior decades, down was just used for specialized winter sports apparel for skiing and climbing. Now down is used in popular, general fashions.

Some companies are developing synthetic substitutes for down as they try to counteract the increasing costs of the down. In the meantime, companies such as Lands’

End, North Face, and other garment manufacturers may raise the prices of their products to counteract the increasing cost of down.

Requirements:

1. Is the cost of down a fixed cost or a variable cost for a jacket manufacturer such as Lands’ End?
2. If the cost of down increases, what happens to the breakeven point for a down-filled jacket product line at Lands’ End?
3. If down increases by a certain percentage, will the selling price of a down-filled jacket need to change by that same percentage to maintain the same profit margin?
Explain.
4. Let’s look at a hypothetical example now. Assume that a Lands’ End down jacket selling for \($150\) contains one pound of goose down. Assume that the cost per pound of down was \($10\) ten years ago and is \($50\) now. Lands’ End has \($250,000\) of fixed costs related to the down jacket line and its other variable manufacturing costs (other direct materials, direct labor, and manufacturing overhead) total \($60\) per jacket. Assume that Lands’ End does not increase the selling price of the down jacket over the five-year period. Calculate the breakeven number of jackets both (a) ten years ago; and (b) now.
5. Assume now the same set of facts as in Requirement 4 but that Lands’ End raises the selling price of each jacket by \($25\) next year. How does the breakeven volume of jackets change next year? (Assume that the cost of goose down remains the same.)