6.3 Omers Incorporated Case

Chapter 6: Techniques for Measuring Fixed and Variable Costs 29 6.3 Omers Incorporated Omers Incorporated is a car manufacturer that has been in business for over 60 years. The head office and manufacturing plant is located in Windsor, Ontario. The company currently manufactures a full lineup of vehicles, which includes three models of sedans, one sport utility vehicle, one minivan, and two pickup trucks. From time to time, the models are overhauled to have a new look; however, the lineup has stayed relatively stable over the last few years. It is now October 4, 20X4, and you are an accountant working in the strategic planning department for the sedans. At the end of every third quarter, the company does a financial review on the sedans. Your boss, Nancy Huang, has asked you to help prepare for the review of the sedan models. A lot of information must be gathered before a thoughtful analysis can be produced. The information you provide will be just one part of a much larger analysis. She has provided you with limited information to get you started, found in Exhibit 1 Required Nancy Huang has asked you to prepare a detailed analysis considering each of the following items. With (a) What is the contribution margin of each model? Under the current sales mix, how many of each (b) What is the margin of safety and the degree of operating leverage for each model? Include an inter (c) How many more sedans would have to be sold to increase overall profit by 20% with a 40% tax rate? your report, provide a list of any limitations in your analysis. model would be required to break even? pretation of your findings. 30 Canadian Managerial Accounting Cases EXHIBIT 1 -SEDAN COST INFORMATION TO DATE Quarter ame Moon 192,500 6,352,500,000 4,764,375,000 889,350,000 197,562,750 508,200,000 (6,987,750) 655,000 19,777,500,000 14,821,875,000 Number of cars sold 300,000 6,600,000,000 5,280,000,000 6,825,000,000 4,777,500,000 819,000,000 341,250,000 273,000,000 614,250,000 ue Direct materi 858, 1 1 2,200,000 594,000,000 Maintenance 651,012,750 1,375,200,000 363,062,250 (244,200,000) Moon Number of cars sold 167,375 7,029,750,000 4,780,230,000 913,867,500 421,785,000 421,785,000 492,082,500 200,200 6,606,600,000 4,822,818,000 924,924,000 264,264,000 528,528,000 66,066,000 324,000 91,575 20,764,350,000 15, I 62,888,000 2,708,407,500 757,329,000 1,549,065,000 586,660,500 7,128,000,000 5,559 ue Direct materials Labour Maintenance Administrative costs Incone 869,616,000 71,280,000 598,752,000 28,512,000 name Ra Number of cars sold 184,113 7,732,725,000 5,180,925,750 914,008,095 378,903,525 471,696,225 787,191,405 7,201,194,000 5,328,883,560 993,764,772 200,841,301 648,107,460 29,596,907 353,160 7,769,520,000 5,982,530,400 932,342,400 I 16,542,800 755,491 22,703,439,000 16,492,339,710 2,840, 5,267 696,287,626 1,725,826,245 948,870,152 ue Direct materials Maintenance Administrative costs 606,0 ome 132,081,840 Total to Date name Moon 513,988 21,587,475,000 14,738,655,750 2,646,875,595 1,141,938,525 1,166,481,225 1,893,523,905 977,160 21,497,520,000 16,822,370,400 2,659,958,400 300,022,800 1,798,774,560 (83,606,160) 2,102,066 63,245,289,000 46,477,102,710 8,114,872,767 2,104,629,376 4,650,091,245 1,898,592,902 Number of cars sold 610,918 20,160,294,000 14,916,076,560 2,808,038,772 662,668,051 1,684,835,460 88,675,157 ue Direct materi Labour Income Notes: . Labour and maintenance are mixed costs (both fixed and variable costs). 2. Administrative costs are fixed costs