5. (5 marks - bonus) Sensitivity CVP analysis and production versus period expenses Multiple-Product Setting

1. If both variable and fixed production expenses (refer to Question #1) associated with the skateboards increased by 5% (beyond the estimate from the high-low analysis), how many skateboards and helmets would need to be sold in order to earn a target income of $96,000? Assume the same sales mix and additional fixed costs in Question #3.

6. (5 marks)Margin of Safety

1. Calculate the margin of safety (both in units and in sales dollars), assuming they sell 700 skateboards and 2,500 helmets next year. Ignore the suggested change in expenses in Question #5.
2. What does this margin of safety mean?

7. (10 marks) Income statement

1. Prepare a forecasted income statement (to the operating income line) for Jonah and Zoe, assuming they sell 700 skateboards and 2,500 helmets, and assuming the 5% cost increase for the skateboards (variable and fixed production costs) and the additional $30,000 combined fixed costs.
2. How would you suggest Jonah and Zoe divide the operating profit?

8. (5 marks) Degree of Operating Leverage

1. Calculate the degree of operating leverage, with the same assumptions as Question #7.
2. What does the DOL tell Jonah and Zoe? Do you think they should consider promotional events? Why or why not?

ACCT 3000 - Group Case #1 DUE: Thursday February 25 (end of day) Course weight: 15% Jonah, a recent business college graduate and avid skateboarder has been very successful in growing his skateboard shop. He is involved in all aspects from design to manufacturing to marketing. Jonah majored in marketing in college and believes his success is partly driven by his monthly marketing campaigns throughout the Greater Toronto Area. Jonah did not enjoy accounting or finance. Zoe, also a recent college graduate and avid skateboarder has also been growing her helmet business. She always had trouble finding cool high-performance helmets, so she decided to design her own. Zoe majored in accounting and believes her weak point is advertising. Jonah and Zoe have recently been discussing combining their businesses since they serve largely the same customers, and the believe they could achieve some synergies by combining Jonah's marketing expertise and Zoe's financial skills. The retail price for the skateboards is $500/each and the helmets are $50/each. Jonah's manufacturing and marketing costs: 2015 2016 2017 2018 2019 2020 Total Skateboards 250 275 240 310 350 400 Total Marketing Costs $45,000 $47,500 $44,000 $51,000 $55,000 $60,000 Total Manufacturing Costs $106,000 $115,000 $108,000 $122,000 $130,000 $140,000 Zoe's manufacturing and marketing costs: 2015 2016 2017 2018 2019 2020 Total Helmets 900 1,200 1,000 1,100 1,400 1,700 Total Marketing Costs $7,500 $9,000 $8,000 $8,500 $10,000 $11,500 Total Manufacturing Costs $38,500 $49,000 $42,000 $45,500 $56,000 $66,500 Deliverable: ACCT 3000 - Group Case #1 DUE: Thursday February 25 (end of day) Course weight: 15% Jonah, a recent business college graduate and avid skateboarder has been very successful in growing his skateboard shop. He is involved in all aspects from design to manufacturing to marketing. Jonah majored in marketing in college and believes his success is partly driven by his monthly marketing campaigns throughout the Greater Toronto Area. Jonah did not enjoy accounting or finance. Zoe, also a recent college graduate and avid skateboarder has also been growing her helmet business. She always had trouble finding cool high-performance helmets, so she decided to design her own. Zoe majored in accounting and believes her weak point is advertising. Jonah and Zoe have recently been discussing combining their businesses since they serve largely the same customers, and the believe they could achieve some synergies by combining Jonah's marketing expertise and Zoe's financial skills. The retail price for the skateboards is $500/each and the helmets are $50/each. Jonah's manufacturing and marketing costs: 2015 2016 2017 2018 2019 2020 Total Skateboards 250 275 240 310 350 400 Total Marketing Costs $45,000 $47,500 $44,000 $51,000 $55,000 $60,000 Total Manufacturing Costs $106,000 $115,000 $108,000 $122,000 $130,000 $140,000 Zoe's manufacturing and marketing costs: 2015 2016 2017 2018 2019 2020 Total Helmets 900 1,200 1,000 1,100 1,400 1,700 Total Marketing Costs $7,500 $9,000 $8,000 $8,500 $10,000 $11,500 Total Manufacturing Costs $38,500 $49,000 $42,000 $45,500 $56,000 $66,500 Deliverable